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    Will Home Building Costs Go Down in 2023? – How we got here and what to expect next

    May 11, 2023  

    A supply chain crisis, skyrocketing material costs and a shortage of skilled trades have caused building costs to rise significantly over the past few years.

    So, Let’s take a look at what’s caused costs to rise so significantly and when we can expect cost pressures to ease.

    What factors have contributed to construction cost rises?

    The approximate cost to build a new home in Australia will continue to rise in 2023.

    This is largely due to labour and material shortages as a result of the pandemic and the war in Europe, increasing demand for new homes, increasing energy costs and changes to government regulations.

    Factors that have influenced construction costs in the past few years

    Government regulations

    Changes to the National Construction Code will come into play from October, 2023. These changes will mean the average cost of a new home will rise in order to meet new accessibility and energy efficiency targets.

    For example, in Victoria, new building standards will require homes to meet a minimum energy efficiency of 7 stars instead of 6. Master Builders say that when this comes to Queensland*should this be New South Whales?, these changes will add up to approximately $15,000-$32,000 to the price of a new house.


    The beginning of the COVID-19 pandemic in 2020 had enormous impacts on the construction industry.

    The pandemic caused major disruptions in supply chains across the world which are still being felt here in Australia today. Supply issues also caused a sharp rise in the cost of rebuilding a house.

    The pandemic also saw problems arise within the labour market, particularly in Australia which relies heavily on international workers.

    Additionally, the COVID pandemic saw the introduction of one of the largest construction stimulus packages Australia has ever seen, creating a much larger demand on a supply that was already struggling.

    All of these factors combined indicate that many of the issues the industry is facing today are due to the ongoing impact of COVID.

    Rise in cost of materials

    Supply chain disruptions during the COVID pandemic caused the cost of materials for modern two-storey house designs to rise rapidly, sometimes without warning. However, despite an easing of these disruptions, the prices of building materials are likely to continue rising for some years. This is due in part to the rising cost of energy and its impact on manufacturing.

    A weakening Australian dollar has also resulted in a significant increase in imported materials and equipment, by up to 15-20 per cent in some cases.


    Labour costs

    A  shortage of new homes builder, caused in part by the pandemic and the restriction of workers across the globe, is an issue that is likely to burden the construction industry over the next decade. In conjunction with this issue is the fact that little has been done to address the number of young workers entering the sector to meet the growing demand.

    As construction labour accounts for about 30% of building costs, this shortage will likely impact residential construction costs over the longer term. The availability of skilled tradespeople has also seen the price of labour rise sharply, according to the Housing Industry Association.

    In other words, it’s difficult to find tradespeople and they are now changing a lot more than they were previously.


    Shortages in supply chains

    Supply chain issues that were sparked by the COVID pandemic in 2020 – such as shipping challenges, skilled labour shortages, and fluctuating costs – are only now beginning to ease.

    As Australia conducts 98 per cent of trade through ports, the country was highly susceptible to manufacturing delays and shipping challenges. And while the availability of some materials will continue to recover over the coming year and into 2024, isolated shortages of some products such as tiles will likely linger for a while longer.


    Changes in demand for housing

    Announced as a part of the federal government’s COVID-19 economic recovery plan, the HomeBuilder grant caused an upswing in construction activity as Australians rushed into the market in order to secure the grant and sent building approvals skyrocketing.

    Unfortunately, along with low interest rates, it also pushed up the cost of building.

    As the stimulus package’s impact begins to wane following the peak of construction activity, demand should begin to steady in the coming years. However, this will largely be impacted by global markets.

    Current State of Home Building Costs 2023

    Recent trends in Australian home building costs

    • Material costs: Continuing to rise
    • Labour costs: Likely to continue to increase in long term
    • Construction costs: Overall cost to build to continue to rise
    • Interest rates: Lowering of interest rates not likely until at least late 2024


    Factors That Could Affect Future Home Building Costs


    Changes in the economy

    • Interest rates
    • Employment rates
    • Inflation


    Changes in government regulations

    • Building codes
    • Environmental regulations


    Changes in supply and demand for housing

    • Population growth
    • Migration patterns
    • Changes in consumer preferences


    Will average building costs continue to rise?

    While all of this may sound like bad news for people looking to build a house in 2023, the fact is that the final cost to build a new home is very unlikely to drop in the short or long term. It’s never going to be as cheap as it once was to build a new home and so the sooner you begin your building journey, the more likely you are to save.

    Master Builders Australia says long-term supply challenges are the industry’s biggest concern. A shortage of land and inflexible planning laws will make it increasingly difficult to meet housing needs into the future. Therefore, although it’s more expensive to build a house in 2023, building a home may be completely out of reach for many by 2033.


    How much does it cost to delay your decision to build?

    The upside of this is that some of the changes that are pushing up the cost to build will also make houses cheaper to run in the future. For example, governments often reward the higher input costs of sustainable design and energy efficiency with subsidies and these advances in our homes will also lead to lower running costs for homeowners in the future.

    Work with builders who can work with your budget

    To find ways to reduce costs while building your dream home, it’s important to have an experienced builder on your side. The team at New South Homes understand everyone has a budget to stick to and can inform you of ways to keep the overall cost down while still achieving what you want.

    A lower cost build doesn’t mean you need to compromise on quality. Choosing a local builder like New South Homes can help you achieve your timeframes and stop your construction cost from blowing out. Contact the very best Sydney home builders today to see how we can help you. You can request a callback or phone us on 02 9481 7441.




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