Construction and renovation costs in Melbourne have increased by 7.3% in the past year
Since the onset of COVID-19, the global economy has been struggling. Things are getting more and more expensive every day and inflation is at an all-time high. It’s therefore not surprising that construction costs have also increased rapidly. In fact, Australian construction costs have increased by 7.3 percent in the past year alone. This is the highest growth rate recorded since 2005.
This growth has been attributed to the increased cost of building materials and labor shortages, particularly during lockdowns. Things are particularly dire in Victoria – the building costs in this state have been rising higher than those of all other Australian states. This is because there has been a hike in supply prices particularly due to supply shortages.
Timber and steel have especially been in short supply, making them more expensive than usual when you do find them. It’s therefore not surprising that it’s now more expensive than ever to finish building a home, leading to a rise in insolvencies. Due to such problems, the Australian Prudential Regulation Authority (APRA) has recently introduced some changes in debt financing.
These now require all mortgage applicants to be able to financially handle a 3 percent increase in interest rates. This is expected to reduce the burden of debt among home builders. However, it may result in one negative effect – a decrease in the number of people building houses.
This is particularly discouraging considering that the construction industry is Victoria’s biggest full-time employer and is responsible for over 46 percent of the state’s tax revenue. Nationally, there’s also some concern over the threat that underinsurance now poses. As such, insurance experts are now more than ever encouraging homeowners to track their sum insured and ensure that it’s enough for worst case scenarios.
However, not everything is dire – the Commonwealth Bank expects residential prices to fall by 10% in 2023. Interestingly, the National Australian Bank predicts a similar decline as well.
Sources: news.com.au & Master Builder Victoria