Why are the costs of building a new home increasing in Perth?

NHBB knows that building a new home in Perth is becoming more and more expensive at an increasing rate. This issue has been brought about by an increase in demand for new home builds due to a number of factors such as federal and state grants designed to encourage people to build new homes.

Due to COVID border restrictions, it has not been possible to recruit new workers from interstate or international locations to overcome with the shortage of trades.

The state and federal grants required people building new homes to sign contracts before a cut off date so that all these homes are now being built at around the same time. These issues have resulted in supplier and building costs increasing at an amazing rate.  Builders are at the end of the chain and are subject to all these increases. As they cannot absorb all of the cost of increases, they will need to pass on the increase to the home owner.

 We are seeing the affect of both local and international conditions.

An increase in demand for new housing

The increase in demand for new housing was brought about by an incentive to build both by the state and federal government.

The WA State government introduced a $20,000 Building Bonus grant, which ran between June and December 2020.

The Australian Government HomeBuilder grant was available to eligible owner-occupiers who enter into a contract to build a new home, or substantially renovate an existing home,  or purchase a new home off-the-plan. The amount of the grant was $25,000 for a contract signed between 4 June and 31 December 2020, or $15,000 for a contract signed between 1 January and 31 March 2021.

Nearly 18,000 West Australian residents applied for this grant.

The massive demand for housing can be seen in the number of new home building approvals - in June 2020 were 921, and by March 2021 the were 2744 approvals, nearly 3 times as many approvals in 8 months.

A shortage of tradespeople

The huge increase in demand for new housing has caused a shortage of tradespeople in Western Australia. There are only so many tradespeople in WA, and the number of workers cannot be increased due to COVID border restrictions.

More labour cannot be hired from other states or brought in from overseas either. Even interstate borders were open, trades from other states may not come as they also have a huge increase in demand for new housing for much the same reasons as WA.

An increase in material and labour costs such as timber and bricklayers

A shortage of labour creates an increased cost for most trades required to build a new home.

As an example, bricklayers rates in WA have gone from $1.60 or $1.70 a brick up to $2.70 or $2.80 a brick. That is approaching double the price.

The cost of timber has also seen significant cost increases - timber prices have soared globally in the last few months.  International prices have hit new heights this year due to both COVID-related shipping delays and high demand for new home builds across both the United States and Europe. Timber prices have had an increase of more than 50 per cent from the pre-COVID price.

 These are just some of examples of increases that have occurred lately.

What does this mean for the home buyer?

The builders are caught in this process where the number of increases in price is frequent with some changes every week. They have no choice but to pass on the increased costs they cannot absorb, otherwise, they could  operating at a loss and go under which has happened to a few over the last 12 months.

The costs of building new homes are still increasing. This has made negotiating the best deal to build your new home more difficult. Due to the high volume of work there can be delays getting jobs to site and cost increases will occur, most being passed on the the client. So if you are about to sign a building contract you should expect some increases to the final price.

If you want to know how we can help you in these unprecedented market conditions - call us for a discovery meeting where we can help you on your journey.

 What Tristan has to say: "We expect at this stage to see trade rates and supplier increases ease into 2022, when the workload for builders tracks back to normal levels.

The key is to pay attention to certain parts of the industry, who may price themselves out of the market, if they continue to have such big increases.

What this will do is open the door to other suppliers and products.

Sometimes change is good, and it takes markets like this for that to occur.

If you want us to cost your plans and find a better deal for you to build your home, contact the team today."

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