Effect of Timber Shortage on new home builds in Australia

New home build cost increases
How much more can build costs increase

As we enter an extended period of heightened construction activity, our clients often ask us “what is the short term and long term effect of timber shortages worldwide on Australian property prices?”

What is evident is that there is a shortage which has resulted in a rise in building costs and also delays in actual builds. Smaller builders who were cutting margins to secure jobs are now being placed at the back of the queue for supply. The larger builders are paying upfront on invoices for priority supply (of all building materials), so are getting priority of delivery. Effect of Timber Shortage on new home builds in Australia is real and costly.

The industry fear is that if you have negotiated a tight margin building contract with a builder and are not prepared to come to an agreement with them to accept an increase in cost of materials required for your build. That builder could go out of business as he cannot feed his family and build at below his cost for you.

And it is not just timber that is in short supply, there is a raft of other materials such as dry-walling, bricks, cladding, insulation etc that is in short supply also driving up building costs.

This is all at the time when interest rates are at their lowest making affordability easier for owners and investors. A time when the Australian Government and State Governments build incentives for first home buyers and investors are all coming to the fore. Demand to get a new build under way is at its peak!

Supply of Raw Materials on the back of Covid is at it’s lowest. When demand outstrips supply prices increase with shortages expected through 2023, we expect build prices to increase during this same period. There is also a shortage of trades, on the back of a massive increase in the number of new builds. The result being increased fees to secure a required trade.

Read more on Supply Shortages in the Construction Sector 2021 here

Tim Lawless, CoreLogic’s Research Director, said “With the surge in dwelling approvals over the past 12 months, Australia’s residential construction sector is working through the early stages of what is set to be an extended period of heightened construction activity.”

“The substantial pipeline of residential construction work is likely to keep both building materials and trades in short supply for an extended period of time.  I think we can expect housing construction costs to rise more significantly over the coming year as supply chains grapple with ongoing shortages. Higher construction costs will inevitably flow through to higher costs for new homes and renovations.”

Read more on Strengthening New Home Sales Surging 11% here

What does this mean for you the want to be new home build owner / investor?

Waiting to see what is going to happen is going to cost you more!

If you have the means get into the market as soon as practical or pay more. Land price continues to increases, demand is outstripping supply, so land developers continue to increase the price of land per square meter. Added to this the ongoing increase in overall build costs. It is evident that you will be paying more in the future for what you should be paying for today.

The sooner you are able to enter the market as an Investor or an Owner the higher your compounded savings will be over the life of your ownership. Especially if you are going to take finance to help secure the property.

Speaking of finance, the murmurs around interest rate increases are becoming louder. There is a sense that either the banks will push their rates up within a year or the RBA will sooner than anticipated. We are already seeing APPRA ensure banks underwrite your loan qualifications at a higher rate (3 percentage points above the loan product rate) to preempt this.

properT network

At properT network, our primary focus is helping you, our client, through our end-to-end all encompassing professional services. Services which we have been providing for 16 years and giving you access to our tried and tested market relationships. To save you time, help you come to an informed decision to save you $’s as an owner occupier or help you make more money as an investor.

We invite you to call on us to work together to :

  • Source and find you land, where you want it and within your budget and timeline to settlement.
  • Package up the land with a suited builder who has years of quality experience, large enough to have strong buying power and can deliver at a competitive rate withing a reasonable time period.
  • Other value added services include :
    • Introduction to professional and skilled mortgage brokers
    • Introduction to solicitors to review contracts and attend settlement of the land for you
    • Introduction to accountants where required
    • For Investors :
      • Introduction to Rental Managers
      • If you are considering investing using your super, we offer introduction to SMSF accountants to help you set up your SMSF
      • Sourcing Investment Grade property to suit your purpose, goals and investment strategy

Land Scarcity is driving up prices too

Land for development is facing an acute shortage across Australia and as government incentives, low interest rates and interstate buyers conspire to turbo-charge demand.

Pressure is growing on the state governments to release new land to meet the seemingly insatiable appetite for greenfield lots across the region.

Avid Group general manager Bruce Harper says the supply and demand for land in south-east Queensland has always been a topical issue for developers, councils and the state government. As is across other States.

“The industry feels we’re running short of supply. Even land that’s not likely to be zoned for development for up to 10 years has been optioned,” he says.

Harper says most developers have consumed their developable land during the past 18 months.

“Demand for lots has been way in excess of previous years—in some cases demand has been up to 100 per cent higher than normal. If anything, there’s a shortage of land.”

And the availability of land has plummeted—less than 400 lots were on the market in September, a 70 per cent decline from the 1299 lots up for grabs in September 2020.

There are a number of reasons demand for land has been so strong. One is the federal government’s HomeBuilder $25,000 grant, which has prompted many first home buyers to bring forward plans to purchase a property.

“Sales have been extremely strong. If you can buy a block of land now, it’s usually off the plan, because there’s virtually no developed lots available in south-east Queensland. People are buying lots off the plan that won’t be titled for six to 12 months,” says Harper.

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