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With construction costs recently growing by the greatest increment since GST was introduced, the property market will continue to be swayed by formidable prices facing those looking to build or renovate.
Ray White’s chief economist Nerida Conisbee noted that the data coming out about the construction industry shows that its challenges are anything but in the past.
“Construction costs are up 9 per cent, the highest rate recorded excluding the year the GST was introduced. Construction industry insolvencies are up 30 per cent over a 12 month period. And with migration only just starting up again, we have a shortage of construction workers,” she noted.
“Supply chain blockages, the war in the Ukraine and bushfires in 2019/20 are all impacting the sector and it will take some time for all of these issues to be resolved.”
The start of the year may have brought about softening house prices, but Ms Conisbee opined that with hurdles still in place for new builds, the ease of getting into an existing home might be appealing to more buyers than ever.
“The medians in Sydney and Melbourne have pulled back a bit while elsewhere price growth is slowing. Add in the first of many expected interest rate rises after two years of the strongest level of price growth ever recorded, you would normally expect prices to continue to stabilise or fall for established homes for the remainder of the year. However this ignores both the complexity of the housing market, as well as how more expensive construction costs influence house prices,” she said.
“Rising construction costs mean that fewer homes will be built. This is partly because of the difficulty in accessing both materials and labour – homes that are in the pipeline to be built will be delayed, in some cases indefinitely.
“This makes a new home more expensive. The slow down in getting a new home, as well as rising construction costs will also mean that people who would have otherwise looked at buying a new home will look to the existing market.”
A rising demand for existing homes from owner-occupiers has also coincided with an increased need for rental properties – a sure recipe for supply issues in both sectors, according to Ms Conisbee.
“Unlike house prices, which are influenced by interest rates and are slowing as a result, rents are going up and will continue to increase with international borders reopening and migration starting up again. There will be a battle for accommodation between owner-occupiers and renters.
The best way to fix housing affordability is to ensure that there are enough homes for people to live in. With construction industry challenges, housing supply will be impacted, resulting in rising prices and rising rents,” she said.
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