Why is it that the cost of building a house is so much higher

The cost of construction has risen at the quickest yearly rate since 2005. So, why is it becoming more and more difficult to build your own home? Rather than just renovators and builders, we'll look at the materials that are growing more expensive today and why all households should pay attention.

Your father used to boast, “Your grandpa constructed this property with his own two hands.”

Why is it so expensive to build your own home these days if Pop could do it with his trusty hammer, some nails, and a bit of hard yakka? (Leaving aside the flaws in your work…)

For instance, in the calendar year 2021 alone, national building prices grew 7.3 percent, which was the greatest yearly growth rate since March 2005.

The bad news is that while supply chain disruptions continue, CoreLogic, a property market analytics business, expects residential building costs to continue to rise above average in the coming quarter.

CoreLogic research director Tim Lawless notes, “There is a considerable amount of residential building work in the pipeline that has been permitted but not yet finished.”

So, what materials are becoming more difficult to come by and more expensive to obtain?

According to data, lumber is the primary driver of cost rises (mostly structural timber).

According to Thomas Devitt, an economist with the Housing Industry Association (HIA), the value of select wood imports hit its highest level on record in the last quarter of 2021.

Mr. Devitt explains, “Timber is primarily produced domestically, but surplus demand, such as in a boom year like 2022, is primarily supplied from international markets.”

In addition, other parts of the market remain volatile, with metal prices now under growing pressure.

There is a risk that certain residential projects could be delayed or over budget due to the lack of some supplies, such as lumber and metal items, according to Mr. Lawless.

Demand for detached homes isn’t set to slow down anytime soon, with 2021 seeing the highest number of approvals on record (with 150,000).

The “boom” is expected to keep builders busy this year and until 2023, Mr. Devitt says.

After such a significant increase in building prices this year, “we might see this translating into more costly new houses and larger remodeling expenditures, ultimately exerting extra upward pressure on inflation,” Mr. Lawless adds.

Why should current homeowners pay attention to this?

In the existing housing market, rising building prices are anticipated to exacerbate affordability issues, making it more difficult for homeowners to improve.

Homeowners and property investors should also assess their insurance coverage, according to CoreLogic’s Head of Insurance Solutions Matthew Walker.

“Underinsurance may soon become a genuine threat to what is a highly precious asset in these times of fast-growing house and development expenses,” says Mr. Walker.

“It’s critical that homeowners maintain track of their insurance coverage and use their insurer’s rebuild calculator or call them every year to make sure it’s sufficient should the worst happen.”

What is the best way to fund a building project?

At the best of circumstances, finding the correct sort of financing for a construction project may be difficult, let alone when building supplies are becoming more costly and wait times are ballooning due to supply shortages.

When seeking a construction loan, it’s critical to work with an expert like us.

We can not only help you get a fantastic rate, but we can also assist you to choose a loan that allows you to be flexible in case something unexpected happens.

So, if you’d want to learn more about your possibilities for your next construction or renovation project, get in contact with us now – we’d love to assist you in developing a strategy for your 2022 construction and property objectives.

To learn more, contact Premium Finance Group Australia at (07) 4720 8888 or email us at finance@pfga.com.au


Disclaimer: The content of this article is general and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your situation and may not be relevant to circumstances. Before taking any action, consider your particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced, or republished without prior written consent.

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