While the “perfect storm” of rising building costs could impact the construction sector for the next two years and fuel already surging property prices, confidence among some in the Gold Coast industry remains firm.
Key points:
- Master Builders estimates the cost of construction has increased by 30 per cent in 12 months
- Several major construction firms have collapsed in recent months
- The developers of a major luxury project remain confident in demand
Building demand and supply chain issues have seen the cost of construction materials rise significantly in the past 12 months, with major firms including Condev and Probuild collapsing.
Regional manager for Master Builders Gold Coast Adam Profke said the industry was “fairly nervous”.
“It’s the perfect storm. We are still bracing for those prices to rise,” he said.
“Not only are we paying more for it, just takes longer to arrive as well.”
What’s the cause?
Mr Profke said “a lot of economic levers were pulled all at the same time” over the past two years.
Factors such as low interest rates and the HomeBuilder scheme have encouraged the construction or renovation of more homes.
Similar trends have been seen around the world, while the war in Ukraine, inflation and COVID-19 have further stretched supply chains.
Meanwhile, natural disasters like the hailstorm that damaged thousands of homes in south-east Queensland in 2020, along with the floods that impacted an estimated 60,000 properties in the south-east last month, have further increased demand for tradespeople.
Mr Profke said that as a result, a $900,000 job done in 2019 could cost $1.4 million today.
“There’s not much in the supply chain for building a new house that hasn’t had a price increase in the past 12 months,” he said.
“People wanting to do renovations or work in the next couple of years, obviously it’s going to cost more and take a little longer than what people originally thought.”
Moreover, because they have signed fixed-price contracts ahead of a project, many builders are unable to pass on the escalating construction cost, which has prompted fears more could fold.
Yet demand remains
Demand for new properties on the Gold Coast can be seen in a $200 million luxury development at Surfers Paradise.
While construction is not scheduled to begin until July, 41 of the 49 units for the 35-storey development have already been sold at an average price of $5.25 million each.
Todd Pepper from the project’s financier Alceon Group said rising construction costs “really started to become prevalent at the back end of last year”.
“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.”
Regional director of construction giant Multiplex, David Redding, said the market is “definitely under stress”.
“The overall construction value has increased between six to 15 per cent over the last six months,” he said.
“There are some trades specifically that have escalated over 50 per cent in the last few months.”
Confidence remains for Gold Coast
House prices on the Gold Coast have increased by 36 per cent in 12 months, while land values have jumped by 36 per cent since 2020.
Todd Pepper said, “There’ll be certain projects that don’t get out of the ground but we’re certainly confident in the Gold Coast”.
“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.
“There’s strong demand on the Gold Coast.”
Mr Redding said while escalating construction costs were likely to continue, he was confident firms like Multiplex could weather the storm.
“We are very risk-averse and ensure we can only take on projects we can deliver.”
What next?
Pimpama on the northern Gold Coast had the largest population growth of all regional areas in the country at a rate of 13 per cent, according to the Bureau of Statistics.
Mostly made up of low-density housing with a median price of about $560,000, 2,300 people moved to Pimpama during the past financial year.
Mr Profke said the growing costs of construction and labour will eventually be passed on to home buyers, prompting more interest in outer suburbs like Pimpama.
Mr Profke said it would take “probably two years at least for things to stabilise”, with many builders booked out well into 2023.
“We have a lot of pent-up activity that’s waiting to happen,” he said.
“As projects are finished they’ll be able take some of the pressure and demand off the market.”
