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Tim Reardon, chief economist at the Housing Industry Association, has a different interpretation of rising construction costs.
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“One of the reasons for the increase in output prices is that rising interest rates have reduced the number of marginal housebuilders in the market, leading to higher average prices,” he said.
“The clientele in the market is increasingly those who are cash-rich, want to build their dream home and are not rate sensitive.”
Reardon said the cost and time of housing construction has almost returned to pre-pandemic levels.
“The producer price index for raw materials has returned to pre-pandemic growth of about 1% to 2% per year. This is important because builders can feel confident starting construction again,” said Reardon.
“Construction time has been reduced from 40 weeks to less than 30 weeks, or even back to pre-pandemic construction time, which eliminates the risk they face in fixed-price contracts.”
Reardon said price competition in the new home construction market is fierce as rising interest rates have reduced the number of customers in the market.
“With sales volumes currently low, builders are now competing fiercely for customers and price competition is very strong in the market right now as builders are confident they can complete homes within contract periods and material prices are relatively stable.”
Master Builders Federation of Australia national president Phil Dwyer said labour shortages had become the biggest issue facing the industry.
“Skilled worker shortages are a major issue,” he said. “It means builders are unable to complete contracts on time because they can’t find skilled workers to complete the contract or move on to the next stage. Most builders are still facing this issue.”
Mr Dwyer said rising wages were putting further cost pressure on the construction industry, mainly due to higher wages for construction workers on large projects and rising costs of living.
“It’s become an ongoing problem that’s causing unrest in the industry,” he said. “If people aren’t happy, they won’t give their all and everything will become dull.”
The Australia Institute senior economist Matt Grudnoff said while construction wage growth had picked up recently, it was still lagging behind increases in the cost of living.
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“It is true that in the latest wage price index, construction wages rose…wages rose 0.8 per cent in the quarter (June). The consumer price index released in the same quarter rose 1 per cent,” he said.
“While wages are slowly catching up, they haven’t even caught up yet. The idea that wages are driving these cost increases is certainly wrong. Wage increases are lagging behind house price increases.”
He said land costs drove up housing construction costs in Australia.
“The biggest factor driving house prices is not housing construction, it’s land, so to blame housing construction for rising house prices and people’s difficulty buying homes is a little ridiculous,” Grudnov said.
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