Labour to become main driver of building costs in Australia

While the construction market is riddled with personnel shortages, it appears labour will overtake material costs as the main driver for rising construction bills in 2022. And it’s Perth that will lead the country for construction cost growth, with a huge increase to tender prices forecasted for the current calendar year.

In its Australia Construction Market View, Summer 2022 report, Amsterdam-based engineering consultancy Arcadis has tipped building tender prices (the quote developers provide for a construction project) in WA’s capital will rise by 7 per cent this year, exceeding the 5-per cent growth in tender prices expected in Sydney, Darwin, and Brisbane.

Construction costs have shocked the property market over the last two years. The rising prices to build real estate in Australia has left many would-be property developers and renovators stumped, and some of the country’s biggest players – like Probuild – belly up.

Materials shortages have been blamed for the staggering construction prices, with commodity prices, including steel and timber, having the most significant price surge due to international demand and lack of supply. Even the likes of electrical products, PVC, and roofing materials have skyrocketed in cost.

But as material costs are tipped to settle down later in 2022, experts are now turning their attention to labour costs, the growth of which is being led by Perth.

International border restrictions have impeded the flow of skilled workers into the country, and its WA’s famous (or infamous) state border closure that caused Perth to achieve country-leading tender price inflation of over 12 per cent in 2021.

Commercial builders like Condev and Probuild have already collapsed in the first quarter of 2022, and there’s a flow-on effect into trades. Builders are racing to get projects done before costs rise further. Meanwhile, the surge in building activity has of course driven demand for services and workers in an environment where contractors have already been picking and choosing their jobs.

One solution to skyrocketing labour costs? Getting people into the country – now.

Arcadis tips the reopening of state borders, for the first time since the pandemic began, will ease a lot of this pressure. But the heavyweight developers will need a far bigger influx of skilled workers than the slow migration of interstate migrants promises.

As for investors, anxious to get into the market but daunted by the accelerating costs of construction, a solution could be found in investing in established real estate.

Even with an expected interest rate hike this year, the banks’ deposit products offer dismal returns. So dormant capital is merely being eaten away by inflation. A property investment, run by expert property investors with a history of performance, can outrun that inflation and potentially provide far higher returns than most other investment avenues.

For more information on partaking in a set-and-forget property investment, get in touch with Properties & Pathways today. Our next commercial property syndicate is around the corner and promises to sell out quickly.

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