The cost of building a new home has skyrocketed by $80,000 since the pandemic as the industry is plagued by rising material costs, supply chain disruptions and labor shortages.
Overall, the cost of building an average new home has risen to $400,000, new data from the Australian Bureau of Statistics (ABS) showed.
Many construction companies have lost “a lot of money” in the past 12 months due to an “exponential rise” in prices – somewhere between 15 and 50 percent — according to Russ Stephens, co-founder of the Association of Professional Builders.
It has led to a series of construction companies collapsedoften leaving a trail of millions of debts.
Meanwhile, a construction insider, who works for one of the largest construction companies in NSW, warned earlier in May that the situation in the industry was only “worsening” as construction companies continued to go under.
He revealed that the price of building houses had been blown away by… between $40,000 and $100,000.
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Hugh Hartigan, chief of research at the National Housing Finance and Investment Corporation, said timber, plywood and timber windows have increased by more than 30 percent in the past year.
But the ABS data also revealed a chilling result for apartments.
It showed a slump in approvals for new apartment projects to a multi-decade low, with economists warning that massive interest rate hikes and rising prices had made real estate developers reluctant.
There were just 3,439 approvals for multi-family housing last month, 44 percent less than in June and 43 percent less than a year earlier.
By way of comparison, 9937 detached houses were approved for construction in July.
Private sector apartments saw a “dramatic” 43.5 percent drop in approvals, especially large complexes, added Dr Brendan Rynne, KPMG’s chief economist.
“Apartment approvals are much more volatile and reflect the cyclical challenges associated with the construction industry – such as economic slowdowns, the downturn in migration, labor shortages and limited project financing available at reasonable costs,” he said.
“All of these challenges, plus the highest consumer price index in construction and the lowest unemployment rate in decades, make multi-family housing particularly difficult right now.
“This is reflected in a lack of new projects being pushed forward in the sector.”
dr. Rynne warned that the decline in housing supply would be bad news for tenants.
“On the one hand, this will put upward pressure on rents and the consumer price index, which will cause concern to the Reserve Bank of Australia as it assesses how far interest rates need to rise to get inflation back within target range,” he said. .
“On the other hand, the lack of supply will support house prices in the face of rising interest rates and support a reversal in house prices at some point in the future.”
Overall, the ABS figures showed building approvals were down 17.2 percent across the country.
“Every state saw a decline except South Australia. WA had the biggest drop in construction approvals,” said Dr. rynne.
“The disruption of interstate migration due to extensive border closures may be one reason why supply is being withdrawn to an even greater degree in the west than in the states on the east coast.”
But Australia’s housing industry economist Tom Devitt said housing approvals were not yet to reflect the full impact of rising interest rates, which had already affected home sales.
“The high number of homes approved in recent months reflects the significant number of new homes in Australia that had been sold earlier this year but not yet approved,” he said.
Home approvals peaked at a record high of nearly 14,300 in March 2021 after the government introduced building subsidies.
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