‘Dramatic’: Cost of building a home skyrockets by hundreds of thousands

A string of company collapses in the construction sector have revealed the pain of rising prices, but renters are also set to take a bigger hit.

The cost of building a new home has skyrocketed by $80,000 since the pandemic as the sector has been plagued by rising material costs, supply chain disruptions and labour shortages.

Overall, the cost of building an average new home has ballooned to $400,000, new data from the Australian Bureau of Statistics (ABS) showed.

Many building companies have lost “a lot of money” in the last 12 months due to an “exponential rise” in prices – anywhere between 15 to 50 per cent – according to Russ Stephens, co-founder of the Association of Professional Builders.

It has led to a string of construction companies collapsing, often leaving a trail of debt in the millions.

Meanwhile, a building insider, who works for one of the largest construction companies in NSW, previously warned in May that the situation in the industry was only “going to get worse” after construction companies kept going under.

He revealed the price of building homes had blown out by between $40,000 and $100,000.

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Approvals for building apartments have dropped dramatically. Picture: Emma Brasier

Hugh Hartigan, head of research at the National Housing Finance and Investment Corporation, said timber, plywood and timber windows have all increased by more than 30 per cent over the last year.

But the ABS data also revealed a chilling result for apartments.

It showed a collapse in approvals for new apartment projects to a decades low, with economists warning that super-sized interest rate hikes and soaring prices had made property developers reluctant.

There were just 3439 approvals for multi-dwelling projects last month, 44 per cent fewer than in June, and 43 per cent lower than a year earlier.

By comparison, there were 9937 stand-alone homes approved to be built in July.

There were just 3439 building approvals for multi-dwelling projects compared with almost 10,000 for stand-alone homes.

The private sector apartments saw a “dramatic” 43.5 per cent drop in approvals, especially large complexes, added Dr Brendan Rynne, KPMG chief economist.

“Apartment approvals are much more volatile and tend to reflect the cyclical challenges associated with the building industry – such as economic slowdowns, the fall away in migration, labour supply shortage and limited project finance available at reasonable cost,” he said.

“All of these challenges, plus the highest construction consumer price index and lowest unemployment rate in decades, makes multi-dwelling construction particularly difficult at the moment.

“This is being reflected in a lack of new projects being put forward in the sector.”

Brendan Rynne is chief economist at KPMG Australia.

Dr Rynne warned the fall in housing supply would be bad news for renters.

“On the one hand, this will put upward pressure on rents and the consumer price index, which will be of concern to the Reserve Bank of Australia as it considers how far interest rates need to rise to get inflation back into the target range,” he said.

“On the other hand, the lack of supply will support dwelling prices in the face of rising interest rates and underpin a turnaround in dwelling prices at some point in the future.”

Overall, the ABS figures showed there had been a 17.2 per cent decline in buildings approval across the nation.

“Each state saw a decline except South Australia. WA experienced the largest fall in building approvals,” Dr Rynne said.

“The disruption to interstate migration brought about by extended border closures is potentially one reason for supply being pulled back to an even higher degree in the west than in the eastern seaboard states.”

Interest rates could start to hit new home builds soon. Picture: Matt Loxton

But Housing Industry of Australia economist Tom Devitt said house building approvals were yet to reflect the full impact of climbing interest rates, which had already battered home sales.

“The strong volume of house approvals in recent months reflects the significant volume of new homes across Australia that had been sold earlier in the year, but not yet approved,” he said.

House approvals peaked at a record high of nearly 14,300 in March 2021 after the government introduced building grants.