Nervous Brisbane Builders Face ‘Perfect Storm’, Master Builders Warns

It’s surprising how skyrocketing building costs are a ‘perfect storm’ set to shake the construction industry for the next two years. Despite the increase in the already hiked property prices, the confidence of some investors in the Brisbane market remains unshakable.

For the past one year, issues surrounding the demand and supply of buildings have led to significant increase in costs of construction materials, with reputable construction firms like Probuild and Condev collapsing.

According to Adam Profke one of the regional managers at Master Builders Brisbane, the construction sector was feeling “fairly nervous”.

He noted that we’re going through a perfect storm and that we should be bracing for an escalation in prices.

What’s causing the perfect storm?

Mr Profke explained that economic levers were “pulled at the same time” in the past two years.

Aspects such as low interest rates or HomeBuilder schemes had led to increased renovation or construction of homes.

The same trends have been witnessed all across the globe with the supply chains being constrained further by inflation, COVID-19 and the war in Ukraine.

In the meantime, the natural disasters recorded in 2020 including the  Brisbane Halloween Hail Storm that destroyed thousands of properties in South East Queensland, and this year’s floods that damaged about 60,000 homes in the southeast, have led to an overwhelming rise in demand for licensed tradespeople.

Consequently, information shared by Mr Profke indicates that construction jobs with a budget of $900,000 in 2019 now cost $1.4 million.

Apparently, prices of all materials for building a new house have shot through the roof in the last 12 months.

Those planning to renovate or build new homes in the next couple of years are now required to dig deeper into their wallets and wait a little longer than usual.

And with fixed-price contracts signed before commencement of projects, many builders are finding it difficult to pass on the rocketing construction costs.

Nonetheless demand surges on

The upcoming $200 million luxury construction project at Surfers Paradise confirms the growing demand for new properties.

While development is set to commence in July, shockingly 41 of the 49 units in the 35-storey building have already been sold at a whopping $5.25 million per unit.

In a statement, Todd Pepper from Alceon Group, the sole financier of the project said escalating construction costs “started becoming prevalent at the back end of last year”.

However, “we’ve been able to keep ahead of the prices we’ve sold for, ahead of where the escalation of construction costs has occurred and we’ve been able to continue with the project.”

On the other end, David Redding a regional director of Multiplex, one of the giant companies in the region said it’s obvious that the construction industry is “under stress”.

As it is now, the average construction value has risen by six to 15 percent over the past six months, he explained.

Mr Redding added that “there are some trades specifically that have escalated over 50 per cent in the last few months.”

Confidence in Brisbane

Prices of houses in Brisbane have gone up by about 36 percent in the past 12 months, while value of land has leaped by 36 percent in the last 2 years.

Todd Pepper noted that, “some projects might not get off the ground but we’re very confident in the Brisbane”.

A comparison between the current figures and those of six years ago reveal a trend in which Brisbane was transforming from a smaller local economy to a self-sustaining economy.

“That’s been reflected in the population growth numbers, it’s shown in the value appreciation of the real estate, and the fact you’re travelling at a less than one per cent residential vacancy rate.”

Brisbane is currently recording a strong demand for housing.

Mr Redding added that even though construction costs are expected to escalate further, he was confident that solid firms like Multiplex would survive the storm.

Responsible builders need to be very risk-averse to ensure that they can only take on projects that they can deliver.

So, what’s next?

For areas like Pimpama in northern Brisbane where population growth is largest in the country at 13 percent as per the Bureau of Statistics, the rising construction costs and labour will ultimately be passed on to home buyers hence drawing more interest to the outer suburbs.

With the low-density housing at a median price of around $560,000, the last financial year has seen 2,300 people relocate to Pimpama.

There’s no doubt that both the consumer and the builders are under pressure.

Some industry experts say that things might only start to stabilise within two years, considering that most Brisbane builders have been booked out all the way to 2023.

As ongoing projects near completion, the demand and pressure will be taken off the troubled building market.