Pictured above (L-R): Sandra Brewer, Glenn Raphael, Nathan Blackburne, Martin Green and Eileen Wong
A period of exceptional stimulus-driven demand for building during which time labour and material supplies were chronically short has kept construction costs high and getting a project to completion harder than ever.
“The last two years has been a journey, probably the most challenging time in my career and as a business, we’ve had to adapt weekly if not daily,” Glenn Raphael, Regional Director at Multiplex told nearly 600 guests at a recent Property Council WA event.
“Whether it’s COVID related, or lockdowns, shipping delays, price escalation, it’s really been a really challenging time for our business.”
Raphael said one way Multiplex has tried to manage these changes was having discussions with clients and key project stakeholder early on.
“What that’s enabled us to do, is bring the subcontractors and supply chain along that journey and to educate them about the project and when it’s going to come to market, getting them interested in the project but also making a lot of key client decisions early on during that process,” he said.
Nathan Blackburne, Managing Director of Cedar Wood Properties, said the last few years have been a period of record highs and record lows.
“We had record sales, record price increases, but also record cost increases taking some of that joy away,” he said.
“For example, in some of our WA sites, in three months we did one to two years’ worth of sales.
“It was phenomenal from that perspective, and off a very low base, but very difficult. Fortunately, as a general rule across our projects nationally, the revenue growth outpaces the cost growth. But that’s not the case of all projects, and particularly WA projects, where we’ve not only had the strongest cost growth, but the least revenue growth, making it particularly difficult.”
Blackburne said the immense demand off the back of government stimulus was welcomed, but the industry was coming off a very low base and was not geared to cope with the increase in volume.
He said feedback from builders, which is being informed by sub-contractors, is that if a job is not close to imminent and highly certain, it isn’t worth pricing.
Blackburn said the gap between selling a project and when construction starts is shifting as a result.
“Let’s say that six or nine months on a typical project – and we don’t generally release a project for sale unless we’ve got a builder locked in under the old model – now you’re having to lock the builder in but with agreed escalation and its escalation on top of the 20 or 30 per cent that’s already gone up,” he said.
Eileen Wong, Pre-Contracts manager at Built and the WA Chapter President of NAWIC said subcontractors are currently time and resources poor.
“Subcontractors at the moment just do not have enough time or resources to keep coming back to a price to numerous builders tendering on the same projects,” she said.
“Let’s face it, there is a limited pool of subcontractors in the market and if they believe a project isn’t feasible, they’re just not going to bother.”
According to CoreLogic’s Cordell Construction Cost Index (CCCI) for Q2 2022, national residential construction costs grew 10 per cent in the year to June 2022, the largest annual growth rate on record outside of the implementation of the GST.
And it isn’t just material prices increasing, the International Construction Market Survey has shown Australia has become the world’s fourth most costly region for construction labour, with an average hourly wage of USD$75.5.
Perth, ranked 36 out of 88 global cities, has become Australia’s most expensive building market, with an average cost of $2,822 per sqm, followed by Sydney (42) at $2,699 per sqm, Melbourne (44) at $2,666 per sqm, Brisbane (46) at $2,620.7 per sqm, and Adelaide (50) at $2,454.4 per sqm.
However, relief might be around the corner.
The sector is working through a backlog of projects, both locally and globally, according to Blackburne, while postponing the projects that were now unviable and a rise in migration will help return the industry back to an equilibrium.
“[These] are the three factors that say to me, ‘equilibrium is going to return’,” he said. “And I think it will return sooner rather than later. I.e., in 2023.”
Builders are now contacting his development business with the hope of beginning construction in the first quarter of 2023, according to Blackburne.
Wong observed a similar trend, with tier one subcontractors now contacting the construction company to obtain business at the beginning of the next year.