Why are property prices still fluctuating so much?
The answer may lie in the construction industry.
Hey everyone, Kim Quach from Duo Tax here with another video designed to help you become
a better property investor.
We thought the property price spikes and fluctuations since the pandemic hit may have cooled by
now, but sadly, in reality, it’s the opposite.
Major disruptions and events, local and worldwide, have all impacted the market, but one thing
that stands out is the recent increase in construction costs.
Things like material shortages, increase in fuel prices, and labour shortages have a huge
impact on the construction industry.
Because of this, builders and contractors are also wary of unforeseeable increases in costs.
In this video, I’m going to share with you the building cost changes in every major capital
city in Australia, so be sure to stick around!
But, before we start, we want to be clear that this video is for informational purposes.
In no way should you interpret this as financial or tax advice.
We always recommend working with a qualified financial advisor or tax agent to give you
the best advice for your situation.
One more thing, I want to thank Rawlinsons’ Australian Construction Handbook for this
insight.
Okay, first of all, Adelaide!
Despite the withdrawal of the Federal Government stimulus in Adelaide, the residential market
is still maintaining strong growth.
Approvals and bank funding for residential construction have been vigorous while interest
rates are still low.
However, the current high level of activity is still impacting material supply and labour
availability and will probably remain so for the foreseeable future.
Hard-hitting factors include the conflict in Ukraine and the floods in the eastern states,
which are placing extra pressure on inflation with another expected interest rate rise in
August and September this year.
In Adelaide, the following prices have increased - concrete has increased by 3 to 4%.
Brick supply has increased by 2 to 3%.
Brickwork labour has increased by 2 to 5%.
Timber supply has increased by 12 to 15%.
Reinforcing steel has increased by 9 to 14%
Next up, is Brisbane.
In Brisbane, building approvals have dipped a little, while the level of activity across
all sectors generally remains high.
Because of this, it was initially thought that the price increases would moderate during
2022, but the recent floods may change this result.
Also, the recent fuel price spike has also impacted the recent cost increases.
Aluminium windows have increased by 5%.
Blockwork laying has increased by $50 per square meter.
Concrete supply has increased by $5 per cubic meter.
Formworks have increased by $10 per square meter.
Reinforcement supply has increased by $150 per tonne.
Then we have Canberra.
2022 was supposed to be a stable year in Canberra, but it hasn't been.
There have been major floods on the east coast and conflict in Ukraine, which have caused
delays in getting supplies and rising fuel costs.
So, this will impact the cost of projects even further.
The average price of a home in Canberra is $1million.
The price of land is from $900,000 to over $1,000,000 for a residential size block in
some suburbs.
The commencement of Light Rail Stage 2 may also affect the market.
Additionally, it’s been reported that Canberra needs three thousand social housing units
to plug the most recent demand, which is adding to the instability of the market.
Now, let's go to Darwin.
The cost of materials is also going up here, and it's getting harder to secure labour and
acquire supplies.
This is causing issues in the market, as construction increases in major Defence and infrastructure
projects.
We forecast an ongoing price rise trend over the short to medium terms until the market
settles.
Investment in the private sector is still slow, alleviating the pressure on the market.
However, this may change once the major projects make progress.
Next, we have Hobart.
In Hobart, activity and tender levels remain high across all industry sectors with limited
contractor availability and volatile pricing.
Tasmania is seeing significant growth and investment.
This is great news, but it's causing supply problems across the board.
There's not enough housing supply, and labour prices are increasing significantly as it’s
not keeping up with demand.
This is likely to continue for a while.
Then we have Melbourne.
In Melbourne, things appear positive and expect high activity for most sectors, except for
retail and office spaces.
However, there are many factors causing construction costs to increase.
These include ongoing supply chain issues, rising transportation costs, and skilled labour
shortages.
This means construction projects are expected to take longer to finish, and companies will
have to compete for more contracts.
For example, LVL and laminated beams have increased by 5 to 10%.
Plasterboard supply has increased by 3 to 5%.
Now let's go to Perth.
Perth, like the rest of Australia, is experiencing shortages in materials.
Lead-in time for available materials has increased, putting delays on projects.
The relaxation of hard border restrictions has opened Western Australia up to National
and International tourism and the free movement of labour, which may contribute to stabilising
the market soon.
All industries are showing signs of a post-COVID recovery.
Contractors are experiencing a very competitive tender market but are still incorporating
the potential for unidentifiable material price increases.
In Perth, the following costs have increased - LVL and laminated beams have risen by 10
to 15%.
Insulation supply has increased by 10 to 30%.
Plastic pipework supply has increased by 15%.
Timber (hardwood) supply has increased by up to 45%.
Proprietary steel framing supply has increased by 50%
And last but not least, Sydney!
Even though the borders have reopened, the construction industry is still facing some
challenges.
Like the rest of Australia, this is mainly because of a shortage of skilled labour, supply
chain disruptions, and rising petrol prices.
However, the border opening is forecasted to help relieve some of these pressures.
Also, the rising cost of petrol prices will continue to directly influence construction
prices, so it is difficult to forecast when any stability will return.
Due to these combinations of factors, it is expected that construction costs will continue
to increase in the medium term, although at a reduced rate and trajectory than in 2021.
In Sydney, brick supply has increased by 2%.
Blockwork supply has increased by 2%.
Brickwork and general labour have both increased by 2%.
Timber supply has increased by up to 9%.
So there you have it - some insights into the causes of spikes and fluctuations in the
property market in every major capital in Australia.
With the federal election and potential change of government, there is still uncertainty
about which way the market is heading, so it's important to do your due diligence as
a property investor.
If you found this video helpful, make sure you hit like and subscribe to our channel
for more property investment tips.
I’m Kim Quach from Duo Tax, see you next time!