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How rising building costs boost home values

Oct 23, 2024

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New business insolvency data is a sharp reminder for owners and buyers that the building industry is still operating on shaky ground across Australia.

Those who want to renovate before selling, or buy land and then build, need to carefully consider their risks before pushing ahead.

Insolvency data from the Australian Securities and Investments Commission (ASIC) shows 27% of some 11,000 insolvencies in the last financial year were construction companies.

A second risk factor is the continuing increase in the cost of building materials.

Prices spiked in the immediate aftermath of Covid. They've cooled since then, but a combination of high demand and a shortage of skilled building labour continues to test the budgets of renovators and those seeking to build a new home.

Two of the states where construction costs have risen most steeply are Western Australia (18.9%) and South Australia (7.3%). Perhaps not coincidentally, these are the two states with the fastest-growing home values right now.

Nationally, the cost of building is up 5.4% compared with 12 months ago, according to Master Builders Australia (MBA).

Data from the Australian Bureau of Statistics is beginning to reflect this upward trend in costs. In its latest set of figures, it found Australia was now building fewer residential properties than at any time since 2011.

Further, June was the worst month for the number of approvals for high-density buildings since 2012.

For property owners, these trends will serve to bolster the price of all residential property in the medium term. Upgraders may feel that purchasing an established property is a safer bet than building a new home.

With Australian inflation now falling within the target range of the Reserve Bank of Australia, we're likely to see those values increase further when interest rates fall from their current benchmark of 4.35%.

If you're an owner looking to renovate your home before sale, here are some tips on how to select a construction company:

  • Don't Rush: Research and careful planning are crucial when choosing a construction company, especially in a challenging market.
  • Test The Market: While price is a factor, consider the overall value. A slightly higher quote from a reputable company might be a better investment than a low bid from a less experienced or financially unstable one.
  • Due Diligence: Check the company's financial health. Look for reviews, news articles, and any public records that might indicate financial difficulties. Ask for references and contact previous clients to inquire about their experiences.
  • Seek Expertise: Ensure your preferred company has experience with similar projects and the specific type of renovation you need. Ask about their team's qualifications and any relevant certifications.
  • The Paperwork: Viewing their licences and insurance documentation is essential. These will protect you in case of accidents or damage during the renovation.

 

Paulette Contessi

Director / Licensee

CONTESSI PROPERTIES