Spending more than you bargained for is the Catch-22 of renovation projects. Almost everyone who upgrades a property blows out their budget, sometimes by as much as 50 or 60 per cent.
These cost blowouts occur partly because building works can lead to additional and unanticipated expenditure, particularly in the high-cost areas of plumbing and rewiring.
But cost blowouts are becoming far more pronounced as Australia experiences a national “tradie shortage” and skyrocketing prices for imported construction materials.
New figures on building costs from data analyst group CoreLogic shows that national residential construction costs increased 9 per cent over the 12 months to March 2022. This was one of the highest annual growth rates ever recorded over the past 40 years.
Home owners tend to see reno-cost blowouts as part and parcel of modern living, and somehow they find the extra money. But is this a smart approach when the evidence suggests that in many cases relocating to a new home, rather than renovating, will save you hundreds of thousands of dollars?
Housing statistics indicate that by trading up to a new home, property owners may save 20 per cent or more on what they could have spent on renovating to achieve the same result.
Nelson Alexander Director Arch Staver believes very few people think through the true costs of renovating before embarking on a makeover project.
He says renovation costs almost always blow out 30 per cent above budget.
“Very often people have to lease another property and move out for the period of the renovation,” Mr Staver notes.
“Although upgrading to a new home involves paying for selling costs and stamp duty, the reality is that if you stay put and renovate those costs may be just as extreme or higher.
“So there is a good opportunity for people to upgrade their home by purchasing a new one. They can find that property that gives them the extra space they need, rather than go through a tiresome renovation.”
There is little doubt that controlling renovation costs and finding tradespeople to actually carry out works in a timely manner is becoming increasingly problematic.
CoreLogic’s Cordell Construction Cost Index (CCCI) for the first quarter of 2022 shows national residential construction costs increased 9 per cent over the 12 months to March 2022. This was the highest annual growth rate on record outside of the introduction of the GST (10.2 per cent over the year to March 2001).
CoreLogic Construction Cost Estimation Manager, John Bennett, says Cordell data shows timber, metals and imported products are driving much of the growth.
“Timber costs continue to rise, with cladding, decking and other timber items affected,” Mr Bennet says.
“Steep rises in metal prices are also now flowing through to the market, with structural steel, fixings and metal components hit hard.
“We continued to see volatility in the rest of the market, with imported products the most vulnerable due to elevated shipping costs. Rising fuel costs are also on the radar and we have continued to see further increases in the cost of other materials,” says Mr Bennett.
CoreLogic Research Director Tim Lawless points out that the annual change in construction costs is approaching double digits, with the impact multi-layered.
“Construction cost growth adds a further element of uncertainty to new building projects and renovations as well as inflationary pressures to the economy,” he says.
The key findings of the Q1 2022 CCCI Report was that construction costs in New South Wales and Victoria increased 2.4 per cent over the March quarter, taking both states’ annual growth rate to 8.8 per cent.
Given these larger costs, property owners need to carefully weigh up the pros and cons of renovating and try to put emotion to one side.
“There is this whole romantic notion about renovating a house and getting exactly what you want,” Mr Staver notes. “But getting exactly what you want through a renovation often means spending substantially more than you may need to.
“That’s because it is highly likely you will find what you want in another property. It’s a lot simpler to move from one house to another rather than go down the route of hiring the architect, dealing with town planning, which takes time, and then putting a renovation project out to tender.”
Meanwhile, a tradie shortage across Australia is unlikely to end soon, experts say.
The ongoing house building and renovation boom are keeping tradespeople like plumbers, bricklayers, electricians and builders busier than ever.
The Housing Industry Association (HIA) believes the shortage could last for at least another two years, possibly longer, as tens of thousands of homes begin construction across the country.
HIA chief economist Tim Reardon says low-interest rates, coupled with home buyers’ desire for a bigger property during COVID-19, had created a rush for new home builds and renovations over the past two years.
“Builders will be at capacity throughout this year and well into 2023,” Mr Reardon says.
The Association’s figures show 125,000 houses are expected to begin construction this year across Australia following a record 149,000 in 2021.