Building materials are running short, leaving customer home improvement projects in doubt, and building companies under pressure.
There have been warnings from the building industry that cement, some electrical components, timber, steel, and paint are all in short supply. The culprit: “unprecedented levels of demand” which is set to continue, especially following the recent weather events across the east coast of Australia.
The current challenges in the building sector, stem from a combination of factors:
- Construction industry projects have surged in recent years (partly due to federal and state stimulus/ incentives) which has led to skyrocketing demand for already scarce materials.
- A record increase in the cost of timber, bricks and steel, sending construction industry costs soaring from May 2021 as new orders across the sector grew at the fastest pace in 24 years.
- Increased demand and the ongoing impact of the pandemic, leading to rising costs and a shortage of materials.
- Labour shortages as fewer young Australians opt for a career in the trades. In addition, Australia’s closed international borders prevented overseas workers entering the country for an extended period.
Consumer demand for building projects has also been considerable in recent months - the rise in demand is partly related to people spending more time at home during the pandemic. This combined with not spending money on socialising or big-ticket items such as holidays, has resulted in Australians having more disposable income, and instead looking to make home improvements.
With demand increasing globally and Australia importing many building materials from overseas, lead times for orders are lengthening while prices are continuing to climb. We have seen timber prices, for example, more than double in some instances.
Supply chain issues are a major factor. Factories and processing plants around the world closed for considerable periods of time due to COVID mandates. Government policy in China (COVID zero principles) has seen entire industrial cities closed (and we understand this is still occurring today).
There has also been a sharp rise in international shipping costs. These costs have risen due a shortage of empty containers from COVID-19-related issues and the sharp recovery in global demand. According to Shipping Australia, since May 2020 the cost of marine fuel has increased 180% percent. This means that the typical one day running cost of a 4250 box ship, has skyrocketed from US$30,200 per day to around US$151,000 per day. This also means that a 10 day delay at a port would cost the shipping company US$1.5million of non-productive time - this then gets factored into the overall shipping cost. Port delays also mean containers full of building materials don't arrive at their destination on time. And, furthermore, the cost of landing imported goods into Australia has at least tripled in recent months.
The issues facing the trucking industry also come into play. While this has mainly impacted the supermarkets to date, we do expect 'knock-on' impacts to the delivery of construction materials when they can finally be secured for projects.
The challenges are not limited to just one or two common building materials. Right across the spectrum, supply issues are evident. Even items like insulation bats and plasterboard are in scarce supply. The local plasterboard situation has become exacerbated by damage to a plasterboard factory in Brisbane. There has been some commentary in the market that “you cannot source plasterboard anywhere in Queensland or northern New South Wales right now,” although many projects seem to be proceeding, possibly using materials brought in from Victoria or other areas.
Bushfires here at home over the past three years have put local timber supplies under pressure. Due to timber supply issues worldwide, the US has been purchasing timber from New Zealand at inflated prices (usually Europe is its major overseas supplier), which has resulted in Australia also having to pay higher prices for New Zealand timber.
Source: Rawlinson’s Building Price Index + Price Adjustment June 30/21 - Dec 31/22
