Builders Price and Wait Times are Increasing- the WHY from a Builders Eyes

​If you are planning a new home build or renovation soon, you may well be aware of the crazy boom town that we are experiencing in Western Australia and in fact Australia wide.
This boom is also taking place in a lot of other countries around the world including USA, England, and New Zealand to name a few.
 
So, unless you have been hiding under a rock, I am sure you are aware that most builders are turning jobs away or advising that they are busy for the next 12- 24 months and three years in some cases! 

What is the Reason for the Building and Renovating Boom? 
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The boom that we are experiencing is due mainly to the Federal Home Builder Grant and the WA Building Bonus grants that were on offer up until December 2020.
 
These grants have caused a massive spike in the home approvals, and builders’ workloads in some cases have gone up by 300%.

Also aside from the grants, we have all spent a lot more time in our homes and we are realising what we want to renovate in our homes or that our homes are not suitable for us anymore and we are upgrading and moving on or extending to make our homes larger and more suited to our lifestyles.
As we are not travelling so much, or at all, when it comes to international travel, nor were we eating out as much for most of 2020. Homeowners around Perth and Australia are saving a lot more money than they normal, so therefore the above mentioned realisations of home renovations and home extensions can be fulfilled…..
 
However, there is a big problem…. the homeowners are talking with builders and being advised that the wait times for any constructions is at least 8 months and up to about 3 years in some cases.
 
On top of this people that may have got quotes from builders pre COVID or 8-12 months ago are now being advised by their builder that there have been massive price increases. And therefore, their quote has been increased by 10-30%!

So, all in all if you are a homeowner, it is probably one of the hardest times to build or renovate a home right now.

But why have prices increased with builders?
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As a builder I can let you in on why there have been price increases.
 
It is very straight forward, and it comes down to the fundamentals of economics: supply and demand.
In Australia we are currently experiencing massive demand for all building materials from timber all the way through to bricks, steel, white board for cabinetry and all things in between. This demand increases of course due to the above stated increase in building activity.
So, in normal circumstances when the demand outweighs the supply the scales tip and the suppliers have no other option but to increase the cost of goods.
 
Economics 1-0-1! Right?
 
Now couple the above supply issues with manufacturing slowing down in a lot of factories and warehouses around the globe, or in fact going into complete lock down for months on end with zero production being undertaken.
 
And this is how we end up with an extreme case of supply shortages.
As the shortages in supply continue to grow and become a massive issue for the industry so do the emails, we continue to get each month from numerous suppliers stating that certain materials will see a 15 and up to 25% increase in cost.

We have had 3 price increases from our steel provider in the space of 4 months! 
Normally a provider will give you a good 2–3-month warning but we are getting this email and seeing price increases effective within 1-2 weeks!
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I think it is now clear to see the suppliers are putting up their prices which is out of the builder’s hand. 

However, to add to this mounting cost of increased materials bills, there is another conundrum that builders face…..
Now, most builders will contract out most of their trade/building work to sub-contractors as it is extremely hard to cover all trades as permanent staff unless you are the biggest builder in Perth.

Even the volume builders use sub-contractors for most of their work.

As stated above there is a massive increase in construction starts this year that will flow into the next 1-2 years.
As it stands there is not enough trade sub-contractors to cover the work, along with this state and international border closures have made this even more of a headache for builders trying to get trades.

So of course, going back to the supply issues, sub-contractors are putting up their prices to counter this. I have heard of brickies putting up their brick install rate by over 50%. Now as a timber frame builder this does not affect us too much!
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The recent changes to the timing on the two grants which saw the government extending the start time restrictions to 18 months from contract signing for Home Builder, and 12 months for the Building bonus in WA, this has effectively eased the sub-contractor price increases.  As some of the control has put back in the power of the builder. And relived the pressure for homeowners hoping to get the grants. 

Time to Build Taking Much Longer

Trade shortages are causing massive delays on site coupled with banks not paying payments on time or taking a long while to approve things.
 
 Let me explain the above issues with an example of how and why this is becoming an issue.
Certain banks are currently taking around 8 weeks to assess a construction finance deal. Now in normal circumstances the builder would have had their concreter or site works contractor booked in to start around 3- 4 weeks from submitting the build permit.

So, in this example when it comes to the actual start date and the bank has not paid their deposit or even approved the loan formally, the builder cannot start!  Unless they want to take a huge risk.

So, the builder therefore puts off the sub-contractors and advises them to start once approved.

Once the builder has finally received the formal approval for the homeowners 4 weeks later and deposit has been paid, the builder rings the site works contractor.  But there is a problem he is too busy on other jobs and advisors the builder he can get there in two weeks.

Ok great, OR NOT! All other trades that were booked in after the site works contactor must also be pushed back. Now, how far will they be pushed back? That will depend on their workflow. The conundrum unfolds…..
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This also becomes a timing issue if weather slows down a sub-contractor as their timetables are fully booked, gone are the days of Netflix on the couch for some subcontractors. Most trades these days are even working Sundays! 

Conclusion
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Price increases are inevitable given the current COVID times and supply shortages we are experiencing; will these materials prices go down we will never know. We can only hope!

COVID has bought about some uncharted waters that not even the smartest know how to navigate.

Regarding the trades labour prices, these will always normalise back to a relevant price as the builder has more control over workflow and the demand drops off.

So, it is ever so important for builders to be managing homeowner’s expectations throughout a build as these builds are taking much longer than in normal circumstances due to materials and labour shortages.

If the build contract is signed and the construction work is under way the builder must burden the price increases themselves as part of their contract obligations. If, however the contract has been signed and the construction works has not started with 45 days, at no fault of the builder, the builder may increase the price and the home owner has the right to accept or exit the contract if the price is a 5% increase above the initial contract price.

So, in these trying times it is EVER so important to be comfortable and trust the builder you are building with.

We at Distinct Renovations only increased our workload by around 20% and have been turning work away weekly. Managing our client’s expectation is one of the most important aspects of our business.
 
If you are considering an extensive home renovation or new build, feel free to reach out to us for help on ballpark figures or any build specific questions you may have we are happy to answer your questions.
 
If this has helped you in any way feel free to leave a comment on social media or this blog post your engagement helps more readers to find this article and may help them along their building journey too!