Increased demand for new builds and renovations, combined with ongoing supply chain disruptions and a shortage of building materials, has led to a spike in construction costs across Australia. Homeowners with fixed-price building contracts are having to find the funds to pay for the unexpected additional costs, and are waiting longer for the build to start or to progress. With this trend set to continue, it’s vital those planning a build work closely with a mortgage broker who has experience in construction lending.

Construction costs increasing

According to Corelogic’s Cordell Construction Cost Index (CCCI), national residential construction costs increased by a whopping 9 per cent in the 12 months up to March 2022. It’s the highest growth rate on record aside from the 10.2 per cent increase at the introduction of GST in 2000.

Speaking on behalf of Corelogic, Research Director Tim Lawless said a surge in dwelling approvals, which peaked in March 2022, was now being felt in the construction industry, with more demand for materials and trades. The increased demand also coincided with a disruption to supply chains, which was placing further pressure on the building industry.“The quarterly rate of growth in construction costs is happening everywhere and is not restricted to one city or state, it’s a national trend,” said Mr. Lawless. 

“For anyone who is looking to build or to renovate, or for someone who owns a business involved in the residential construction industry, it means they are all likely to be facing significantly higher costs.”

“This doesn’t look like a short-term spike,” he said.

“This construction cost inflation could continue for another 12 to 18 months. It’s unlikely the industry can absorb a cost increase this significant into their margins and higher construction costs will ultimately be passed on to the consumer, placing further upwards pressure on the price of a new dwelling or renovation.”

Going back to the lender

Meanwhile, some Australians who have fixed-price building contracts, with construction mid-way or yet to start, are already feeling the pinch, as increased building costs are being passed on to them. Having to source the extra funds to cover the shortfall is proving challenging for many, and mortgage brokers are assisting with advice around possible options.

If clients are unable to raise the funds themselves, it means completing a variation of the contract, going back to the lender to reassess the deal, and release more money to cover the increase in price. This is a time consuming process as it involves reviewing the client’s financial situation, requesting updated documentation for income and expenses, and then resubmitting to the lender for approval. 

What’s more, ongoing supply chain issues are delaying projects and many homeowners who have already begun to pay a mortgage on the land they have bought, are yet to see their build start because of a shortage of building supplies.

An expert in construction lending

Building a home in the present environment is likely to be a stressful process for all involved, and it’s a timely reminder of the importance of engaging a broker with experience in construction lending, who can guide you through the home building process and help you manage the increase in building costs you may be faced with.

In times of rising interest rates, a higher cost of living, and increased building costs, it’s worthwhile getting the best advice possible when deciding whether to build a new home or buy an existing one.

Contact Mortgage Express today to speak to a broker who understands the challenges that come with construction lending, and can provide you with advice to help you make the right decision.

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