'A Record High'

The cost of building a new house

Last week I read one of those news headlines you really don’t want to see if you’re building a new house:

The cost of building a new house has reached a record high, and experts warn there’s little chance that prices will ease.

‘Materials and labour costs have risen considerably since the pandemic began in 2019’

It was an article in the Sydney Morning Herald by the national property editor Elizabeth Redman. The alarmist tone continued, starting with blaming the pandemic:

Labour and materials costs jumped when the pandemic began as lockdown-era stimulus of the construction industry collided with a global inflation breakout, and costs show no sign of reverting to previous levels.

Scary graphs illustrated the article:

The data reveals steep rises

It seems that ABS data has recently been released which shows that the average cost to build a new house in Australia is currently $504,109, which is a rise of 6.5% since last year, and a startling 52.6% since 2019.

My project will cost more than this average, but presumably the rate of increase is more or less reflected across the value spectrum. It might even be more for higher-end finishes or larger builds.

Why this big increase in costs?

Shane Garrett, an economist from the Master Builders Association, is quoted as blaming labour shortages for some of these cost rises:

“Time is money when it comes to home building, so the longer it takes to build, the more money you have tied up in it,” he said.

Not only are there currently not enough contractors in the industry, not enough new workers were joining, he said, especially as experienced workers retire or semi-retire.

“When you don’t have enough workers, what happens? Workers go to the highest bidder and that means if you’re going to go ahead with your project, you’re going to be paying much higher wages.”

Higher costs of materials

Garrett also said the cost of materials was generally much higher than six years ago, especially for timber, ceramic goods and electrical equipment.

And he thought it unlikely labour costs would decline, especially as some of the larger unions negotiate increases in wages from year to year.

Other experts agreed

Housing Industry Association senior economist Tom Devitt said the recent rise was largely due to labour cost increases, while the unemployment rate holds at historic lows.

“The shortage of skilled trades for construction sectors is particularly acute,” he said

Regulations raise costs too

Devitt noted changes to the National Construction Code to improve energy efficiency, which he thought was a worthwhile objective, but said it resulted in costs that were passed on to home buyers.

So trades are scare, materials cost more, and regulatory requirements are adding expense. I think I can attest that aspiring to a Passivhaus amplifies all these things: the difficulty of finding a builder with experience and passion for energy efficient building, the cost of SIPs, wrapping, sealing and other construction elements, and the higher regulatory bars for energy efficiency are the main reasons my project is turning out super expensive. Of course, I’d love the high end finishes too. We’ll have to see.

And how are the builders coping?

The SMH article interviewed Sydney builder Robert Faraj, who spoke of being caught out by sudden rises in the cost of materials:

He made an order of plasterboard in mid-February. It was delivered on March 2, but on March 1 the supplier increased prices by 7 per cent, leaving him paying the March price.

That meant it cost $40,000 for enough plasterboard for four, four-bedroom houses. The product usually increases in price four times a year.

Electrical cable for light switches has increased, too, among others.

“It didn’t jump $95 or $100 in a week. Every second month [the suppliers say] ‘Oh hey, 10 per cent, 10 per cent, 10 per cent,’” he said.

‘Builder Robert Faraj is facing the impact of rising materials costs.’

“You’re judged on your worst job, not your best job, so we’re always trying to maintain a standard and a value of what we give our clients,” he said.

He also can’t charge clients more once they have agreed on a price for a build.

“How? They can’t go back to the bank and say, ‘hey bank, Robert said the plasterboard has gone up.’”

Where are all the trades?

Robert Faraj has seen his work slip off because everything is too expensive.

“Everyone’s saying it’s not worth it, so we’re not seeing as much come through the pipeline of approvals of work,” he said.

“We’ve got some really good tradies in this country and most of them are busy at the moment doing all these tunnels.”

‘Regular price rises to materials such as plasterboard are leaving builders out of pocket.’

Were we warned?

A quick search shows a similar article in the SMH about a year ago, when the ABS released its building costs data for 2024. ‘Cost of building a home in Australia jumps $100,000 in four years’ read that headline.

So we were warned—not that I was listening, as I leapt excitedly into this project.

So here I am now, waiting to see what my grand plans will cost, crossing fingers the estimates will come within the budget. And then will follow the next leap, into the maelstrom of rising materials costs and trade shortages.

In case you’re wondering, I remain committed. We’ll build something!

Watch this space.

*photos and quotes from the SMH