The Myth of Decreasing Building Costs

It’s a common misconception that building costs will decrease over time. Several factors contribute to the persistent rise in construction expenses:

In recent times, many homeowners and investors have adopted a ‘wait and see’ approach, delaying new builds, renovations, or knockdowns in anticipation of a decrease in building costs. However, current trends and regulatory changes suggest that postponing construction projects might not lead to the anticipated savings. In fact, waiting could result in higher expenses due to escalating costs and evolving building standards.

1. Material and Labor Costs

The building and construction industry continues to face challenges such as trade and material shortages, which show no sign of abating. Material costs have been steadily increasing due to global supply chain issues, inflation, and higher demand. Additionally, the ongoing skills shortage in Australia means that labor costs are also on the rise, with experienced tradespeople commanding higher wages.

2. Inflation and Interest Rates

The broader economic environment, marked by surging inflation and rising interest rates, exerts additional pressure on construction costs. As borrowing becomes more expensive, builders and suppliers adjust their pricing to accommodate these financial shifts. The cost of financing a project today is likely to be more affordable than it will be in the future as interest rates continue their upward trajectory.

3. Increased Demand for Housing

With ongoing population growth, particularly in Queensland, the demand for housing remains strong. A growing population increases competition for land, materials, and labor, driving prices higher. Government incentives and infrastructure projects also fuel demand, making it unlikely that prices will fall in the near future.

Impact of Regulatory Changes on Building Costs

Government regulations play a significant role in shaping the construction landscape. In Queensland, several recent amendments are poised to influence building expenses:

1. National Construction Code (NCC) 2022 Implementation

Queensland has adopted a phased approach to implementing the NCC 2022, with changes effective from October 1, 2023, through to May 1, 2025. These updates introduce enhanced accessibility standards and stricter energy efficiency requirements, aiming to improve the livability and sustainability of new homes. While these changes are beneficial in the long run, they also come with added construction costs due to the need for upgraded materials, insulation, and design modifications.

2. Queensland Development Code (QDC) Updates

The Queensland Government has released the Queensland Development Code – Mandatory Part 4.5 – Livable dwellings and grading to floor wastes (QDC MP4.5) for application to class 1 buildings and sole-occupancy units in class 2 buildings. These modifications increase the cost of new builds and renovations, as additional design and construction elements must be included to meet compliance.

3. Energy Efficiency Standards

The requirement for new homes to meet a 7-star energy efficiency rating means additional expenses in insulation, double glazing, and energy-efficient design. Builders and homeowners will need to budget for these changes, which could push construction costs higher over time.

Master Builders‘ Insights

Master Builders Australia forecasts indicate that the volume of residential building work is expected to bottom out at $63.3 billion in 2023-24 before bouncing back to $85.9 billion in 2027-28. This means the industry is expected to become busier, with higher demand pushing up prices further. If you wait, you could be facing not only regulatory increases but also price hikes due to growing demand.

The Cost of Waiting

Delaying construction projects in hopes of cost reductions may not yield the desired financial benefits. Instead, homeowners and investors might face:

• Increased Compliance Costs: Future projects will need to adhere to the latest building codes and standards, which may require more expensive materials or construction techniques.
• Higher Financing Costs: With interest rates on the rise, postponing projects could lead to more expensive financing options in the future.
• Greater Competition for Trades and Materials: As demand continues to grow, securing tradespeople and materials could become more difficult and expensive.

Conclusion

While it’s natural to hope for a decrease in building costs, current trends and regulatory changes suggest otherwise. For those considering new builds, renovations, or knockdowns, acting sooner rather than later may offer financial advantages. Engaging with reputable builders who are well-versed in the latest standards can ensure that projects are both compliant and cost-effective. Instead of waiting for an unlikely drop in costs, homeowners should focus on securing their project now before further increases take effect.