The Rising Cost of Building Materials

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Why Are Building Materials so Expensive?

The past year has seen plenty of uncertainty in the Australian construction industry. While the pandemic is mostly over, the effects of it and more recent economic factors can still be felt.

Below, we look at the main factors for the rising cost of building materials and why certain stock is set to rise or fall in the coming months.

The Australian Construction Industry: An Overview

Before looking at costs, it’s worth noting the importance of construction to the Australian economy.

Construction is vital to our economic output, employing approximately one million people and generating $307 billion annually, according to the ABS Building Activity report.

COVID-19

The Coronavirus in 2020 saw interruptions to global supply chains. Meanwhile, Australia’s borders closed, and states went into varying forms of lockdown to contain the spread and reduce case numbers.

The cocktail of factors above saw material prices rise immediately. Data firm Gordion recorded 82.5% of materials rose an average of 19% in costs. Timber increased 16%, steel rose 22%, and concrete jumped 15%.

Despite the return to normalcy, the hiked prices are slow to drop as several adjacent factors put upward pressure on costs.

New Legislation

Native growth logging accounts for approximately 12% of all logging in Australia. At the same, no new plantations required to keep up with demand over the next decade have begun.

The Victorian state government has pushed forward plans to cease native timber logging to 2024 instead of 2030. The move-up of the ban has thrown a wrench in the supply chain of manufacturers and wholesalers across Victoria and nationwide.

With no new plantations currently opening and what’s left of native logging closing, prices will see a sharp spike. The shortage of timber is already being felt in certain aspects, with a lack of Timber Sole Boards statewide.

Until the state and federal governments implement a cohesive strategy to replace lost supply and meet rising demand, prices are not likely to fall anytime soon.

Economic Uncertainty

A variety of factors are contributing to economic uncertainty and a lack of willingness to commit to new builds.

The most notable and talked about is the rising interest rates by the RBA following historic lows. Less borrowing power than before has halted many projects and severely affected those in progress. The collapse of homebuilders such as ProBuild and Porter Davis has only fuelled uncertainty.

Tight economic conditions have acted as a barrier to brand-new equipment and materials. Builders are now forced to source second-hand from consumer marketplaces such as Facebook or hire equipment that permits it. It doesn’t make sense to purchase Shoring Sets or Acrow Props when hiring is cheaper, especially when the source of incoming work is infrequent.