Are you considering purchasing a home off-plan? Or perhaps building may be the best way to get the home you really want. Perhaps it's just an extension. Whatever your motivations, be forewarned, it could possibly be the worst time to build in recent history. Currently, Australia, New Zealand and most of the developed world is suffering from building material supply shortages.
What is going and what is causing these shortages?
Like so many things today, the main problem constraining the supply of building materials is the global pandemic, which in one way or another is causing disruption to virtually all supply chains. We take a closer look at this and other factors compounding the shortage.
The DIY Boom:
If you have been to Bunnings recently, you couldn’t help notice the throngs of people buying all types of DIY supplies. (and this activity represents just a fraction of the ordering that is taking place online!). Enduring lockdowns have meant people have more time on their hands to take on DIY projects. Also, when you are locked down with nowhere to go, the desire to improve the living conditions of your home increases. This all leads to increased demand for building supplies.
Transportation and Delivery Issues:
There is a nationwide shortage of Heavy Goods Vehicle (HGV) drivers. Not enough drivers mean that not enough materials are being delivered in good time. The flow-on effect of this is of course that depots and warehouses are either running out of materials (from lack of deliveries) or overstocked as there do not have enough drivers to send out stock. The cherry on the cake for all of this is that across Australia, many deliveries cannot be made due to border closures as well as restrictions on drivers themselves, such as vaccination status.
Building Boom and a Housing Shortage
There is a housing shortage in Australia. And yes, there is always a housing shortage in Australia, as successive governments have failed to address the inadequate provision of land for homes. This supervised neglect means that there is always a demand for building. The result? Any hiccup in the system means prices jump and supply dwindles.
Nothing like a lockdown to fire up DIY demand.
Who is affected the most?
Compared to larger developers, smaller contractors and independent builders have less certainty of consumer demand and tend to work on smaller developments. So, a builder working on your new granny flat will likely be buying materials 'as and when' he needs them, directly from a building merchant. If the merchant is waiting on a delivery, there will be delays to the build. Any delays add costs and mean the builder is exposed to price increases whilst earning less upon completion. For example, a smaller builder may have given you a fixed price before commencing building, and now that costs of supplies have increased across the board, they may be delivering a project that is below the costs of delivery. Long term, this is not sustainable.
This does not mean that larger developers are not affected, it is just that they are more likely to have secured their supply lines well in advance, and enjoy more purchasing power to secure alternative supplies. However, land developers in the early stages of development are increasingly concluding that the increased risks of delays and costly developments are not worth it. As such, they may decide to pause development until more favourable conditions arise. Of course, means that less housing stock is being produced, which adds pressure to the housing market again!
What is the best course of action now?
If you are a builder
In some areas, building shortages are so severe that police have reported increased theft of materials for worksites. Make sure that you increase security on your site and secure materials. Many builders now are only guaranteeing quotes for 30 days, whilst also including more provisions to account for price fluctuations and delivery issues in the contract. The key here is to protect yourself from unforeseen variations in delivery and prices, whilst managing the client's expectations in the given circumstances.
If you are a consumer
You really have to do your research. Do you really need to build at this time or could you buy a ready-made home? If you are going to build, ensure that you ask any builder that you plan to work with what they have done to ensure supply of the materials related to your project. It could be a condition that supplies are already held, or that there are substitute materials that could be considered due to availability. The same would apply to larger developers too. The key is to be flexible but also do your due diligence.
However, if you are able to, it may be wise to ‘wait it out' and hope that the supply chains stabilise.
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