As Australia continues to deal with the fallout from COVID-19, strong construction activity and supply disruptions have led to an increase in the cost of key building materials.
Low interest rates, along with government stimulus in civil infrastructure and residential projects, means less timber, steel and concrete to go around.
So far, the influence on the cost of building has been minimal, in the range of 1-2 per cent in major cities, which also takes into account labour fluctuations and other factors.
In its first quarterly update, national construction cost consultants Rawlinsons reported that between December 2020 and March 2021, Canberra and Sydney saw the biggest jump, with an increase of 2 per cent.
Elsewhere, Adelaide saw an increase in the cost of building of 0.75 per cent, Brisbane 1.5 per cent, Hobart 1 per cent, Melbourne 1 per cent and Perth 0.60 per cent.
While data from Melbourne and Sydney was incomplete, the below outline from Rawlinson gives an idea of national trends in terms of materials prices:
Adelaide
-Concrete – prices for concrete supply have increased by 5-10 per cent
-Timber supply – prices for timber supply have increased by 10-15 per cent
-Bar reinforcement – prices for bar reinforcement have increased by 20 per cent
-Reinforcing steel – prices for reinforcing steel have increased by 10-15 per cent
Brisbane
-LVL, Laminated Beams – prices for LVL and laminated beams have increased by 15 per cent
-Timber framing – prices for timber framing have increased by 15 per cent
-Bar reinforcement – prices for bar reinforcement supply have increased by $150/t
-Mesh reinforcement – prices for mesh reinforcement supply have increased by 10 per cent
-Concrete – prices for concrete supply have increased by $10/cum
-Structural Steel – prices for structural steel supply have increased by 10 per cent
-Roofing / Purlins – prices for roofing / purlins have increased by 10 per cent
Canberra
– Concrete – prices for concrete supply have increased by 7 per cent
-Timber supply – prices for timber supply have increased by 10-20 per cent
-Brick supply – prices for brick supply have increased by 10 per cent
-Reinforcing steel – prices for reinforcing steel have increased by 10-15 per cent
Perth
-Formwork – prices for formwork have increased by 5-10 per cent
-Brickwork labour – prices for brickwork labour have increased by 25-45 per cent
-Fabric reinforcement – prices for fabric reinforcement have increased by 20 per cent
“There’s a lot of things that go into the cost of materials. The main thing I would say is that when you’ve got government pushing infrastructure works, as I think they are in much of the country, those projects use a lot of a few materials,” Rawlinsons director of publishing Matt Roddis explained.
Rail projects such as the 1,700km Inland Rail project or metros in Sydney, Melbourne and Perth require steel not only for tracks but for platforms, overhead power lines, and so on.
“So that means your little housebuilder or someone who wants to put in a small office is going to be paying a premium for steel because there just isn’t that much available. Pure economic supply and demand,” Roddis added.
Who’s paying the price?
Director at quantity surveyors Rider Levett Bucknall, Domenic Schiafone, said that contractors currently appeared to be absorbing much of the cost of increased materials in order to win tenders.
He believes that with uncertainty about how many projects will be going to tender towards the end of the year compared with now, contractors are looking to fill their books rather than pass on the cost of materials and risk losing contracts.
“At the moment the impact on tenders is not significant and we feel that is generally because contractors are coming off a COVID-19 year. Every tender is a must win essentially,” Schiafone said.
However, Schiafone said that if construction activity continues as it has for the first part of the year then the material price increases may start to be seen more in tenders.
“It’s probably more towards the back of this year, early next, where that might happen,” Schiafone said.
What does this mean for sustainability?
It’s not clear whether the change in material costs will push projects in a more sustainable or less sustainable direction, with the price of greener solutions such as Cross Laminated Timber (CLT) increasing along with steel and concrete.
Australian CLT manufacturer Crosslam has seen the price of their product increase by around 20 per cent, a slightly larger jump than other materials, posing concerns over whether developers may be deterred from using the material.
However, architect James Fitzpatrick from Fitzpatrick and Partners, who specialises in timber construction, is unshaken. He wasn’t particularly concerned about the price changes, describing it as a temporary fluctuation primarily caused by production disruption in Europe by COVID-19.
Fitzpatrick said he understood that COVID-19 had caused disruptions to the supply chain during last year’s summer in Europe, which is when lumber is harvested.
“It was generally an issue due to shutdowns in Europe. So that meant that the harvest season last summer in Europe was pretty well non-existent, and they don’t harvest during their winter, it’s all processing, so we understand there was a slowdown in the supply chain which has put the price of timber up,” Fitzpatrick said.
“We understand now that they’re basically getting ready to recommence harvesting production and they see disruptions as very much a short term issue and it’s going to soften and get back to normal.”
According to Fitzpatrick, the supply shortage should only affect projects trying to source timber for right now and not those projects planned for a year or two down the track, when supply should be more readily available.
One of his projects had faced the issue of higher costs for timber out of Europe, but it was far from enough to kill the project, he said.
Fitzpatrick estimated he had seen roughly a 1.5 per cent increase in the cost of the project due to disruptions from COVID-19, but said that other projects had seen similar and sometimes more severe price hikes.
He suggested that with uncertainty in overseas markets, local manufacturers may have an opportunity to step up and out-compete foreign sellers.
“Perhaps more pressure to use local materials instead of imported building materials (ie CLT and cladding),” Fitzpatrick said.
“With opportunities for other product markets to compete or for Australian manufacturers to gear up and out compete the offshore.”