Over the last 6 weeks, we have seen fuel prices increase significantly and even availability start to decline due to the war in Iran. It is starting to look like the COVID days all over again, when we had supply shortages and hefty price hikes as a consequence throughout the building industry not just in Adelaide but Australia wide. We are hearing reports of potential fuel limitations and restrictions on using motor vehicles. Some states are starting to offer free public transport for 1 month to minimise the number of passenger vehicles on the roads.
Building Supplies
Many of our suppliers have already put their costs up in relation to delivery fees, and we are now receiving daily updates from material companies such as plumbing, electrical and paint wholesalers who are noting up to a 30% to 40% increase in plastic products, which rely upon oil to manufacture their fittings. It will only be a matter of time before all sectors have price increases as the flow on effects of these increases impact on business operations.
As a result of the COVID period in the building industry, we saw an average bathroom renovation go from $27,000 to around $45,000, nearly doubling. We have seen an architecturally designed extension on a home of around 150 sqm go from $450,000 to nearly $1 million. This has all happened over a period of approx 5 years. Can the building industry handle another hefty price hike like this again? And what does this mean for the customers?
It is already bad enough with slow approval processes across all aspects of the building industry, snail-paced approval for new builds (red tape), Council Approvals on renovation/extensions and an increase in Builders Indemnity Insurance premiums effective from October 2025. These costs and implications of the lack of urgency and level of red tape, creating delays in approvals are already hurting the building industry. But now that we are seeing huge fuel costs impacting all parts of the building industry (diesel expected to hit $4 a litre shortly), it will be a sad outcome for many companies if this drags on too much longer.
Coming Out Of The Hole
Hopefully, over the coming weeks, we will see some light at the end of the tunnelm, decrease in the fuel excise has already been implemented, and positive news surrounding supply levels to Australia. There is no doubt that the government is making a huge amount of money out of this, just on the increased GST component right before their May budget, but we need relief in the building industry to ensure we do not see another COVID spike and another doubling of the cost to build new homes and renovate in Adelaide.
Housing Shortage Risks
With the growing housing shortage, and the severe skills shortage on top of that, this is not what any builder wants to or can afford to see happening to the industry. Fixed price contracts that are potentially locked in for 12 to 18 months, is a long time to hold over massive price increases that no one saw coming. With Adelaide currently experiencing a higher-than-ever construction activity in the CBD and the urban sprawl only just starting to gain momentum, a permanent increase in the cost to build will be a very interesting space to watch.
We have seen this before, the costs are increased but they rarely come back down and we are all stuck with the inflated prices as the new normal.
Let’s hope it isn’t the same outcome this time, Australian businesses and consumers simply can’t keep taking these financial hits.