Sydney construction Barangaroo
Image: Sander Dalhuisen

The cost of building materials is steadily rising as Covid continues to impact supply chains, with some key materials expected to increase by 40 per cent in some areas. 

Matt Billingham

According to Matt Billingham, Australian real estate lead at global consultancy Turner & Townsend, between 2020-21, the price of steel in Sydney has already risen 10 per cent, reinforcement bar is up 20 per cent and timber up 25 per cent. 

Last month the company released a global survey of construction markets which found that well over half were seeing significant increases in activity, expected to continue for a number of years. 

Mr Billingham explained that in Australia it was not just interruptions to supply chains, but the broad based scale of activity, underpinned by government financial incentives that was creating strain.

“We’ve got serious constraints on supply. One aspect of it is that all our states are pumping at the same time and we’ve got more than one sector pumping too,” he said. 

“Also, we use a lot of imported materials in construction in Australia. Freight costs have gone through the roof, so that’s having an impact, but then raw materials like steel, timber, copper, are also in short supply.” 

The effect is already being felt in the cost of construction, with Sydney ranked as the most expensive place to build in Australia with an average cost of $2640 a square metre, positioned at 43 in the global rankings.

While many are looking to avoid increased costs as much as possible, by securing orders further into the future and buying in larger amounts, Billingham said going green was not necessarily a financially attractive alternative yet.

“There’s increased costs associated with greener materials, from an economic standpoint. And I suppose, like a lot of this stuff on the journey to net zero we’re still at the start of that journey,” he said. 

“We don’t necessarily have efficiencies in the marketplace through economies of scale for those new technologies or those green materials to compete on an economic level with less green solutions.

“But as we move forwards and more suppliers get on board with this hopefully we’ll see the cost of those new technologies come down.”

While many countries are adopting a “build back better approach” Australia has drawn criticism from some for missing the opportunity to divert government spending into more sustainable avenues, such as energy efficiency retrofits. 

“If you take for example, [The City of London], they’ve got this net zero accelerator retrofit program which basically finances the upgrade of airconditioning systems and so on within buildings,” Mr Billingham said. 

“And that capital investment is paid back to the government over the first five or six years. So it’s net zero capital outlay for the building owner. And then after that relatively short payback period those energy savings start to flow back to the building owner.”

Australia has a lending mechanism to assist through environmental upgrade agreements, now managed through Sustainable Australia Fund, see article, Sustainable Australia Fund launches next generation environmental upgrade loans.

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