What the supply shortage means for the property market

After all the hours you’ll spend finding the perfect block of land, designing your dream home, and getting it through the DA approval process, it’s pretty heartbreaking to suddenly be told that you’ll have to wait for up to another year for construction to begin. When you ask your tradie why, he shrugs one shoulder and glibly says: “Supply issues. You know how it is”.

A sharp increase in global demand for building products during the COVID-19 pandemic has caused price rises and delays on Australian construction sites, and the issue is only getting worse. Builders across the country have reported trouble in accessing items like timber for house frames, as more Australians decide to build detached homes. Even massive property developers building new apartment blocks are finding that they have to adjust costs and put off construction, because not even they have the power to push through an undersupply of the basic goods needed to build a house, and an undersupply of the tradespeople needed to do the building.

What caused this problem?

Worldwide, there has been a massive increase in the number of people building new, or renovating, their homes. A lot of this has to do with the Covid-19 pandemic, and the amount of time people have been spending at home: what once was simply ‘OK’, and something you could live with, has become an annoying feature you have to fix right now. Across the world, everyone is struggling to get their hands on enough wood, steel and concrete to build their homes, particularly those in first-world countries who want to build more elaborate – and often brand-new – homes. Freight restrictions are also playing into this issue on a worldwide scale as everyone struggles to get their hands on whatever they can.

What’s getting more expensive? Everything

Australia is having further issues due to our booming property market. A contributing internal factor behind the construction boom in Australia has been the HomeBuilder scheme, which offers owners grants worth tens of thousands of dollars to either build new homes or substantially renovate their existing properties. One of the key elements of HomeBuilder is that construction on eligible projects must begin within six months of contracts being signed. When that deadline is placed on sites across the country, some projects begin to miss out on government support due to delays.

The Housing Industry of Australia’s current forecasts suggest 130,000 new homes will be built across the country this year, up from the previous peak of 120,000 in 2017.

What does it mean for you?

The effect these pressures will have on the market will really depend on what you’re buying and building.

If you’re a house buyer and builder, you’ll be feeling the brunt of this pain. You’re probably having builders tell you that they’re booked out for months, and seeing the costs for your build increase by the day. Unfortunately, there’s not a lot you can do about this: these pressures will remain on the market for some time to come, and they will get worse before they get better. You might also be finding that you’re having issues if you do secure builders: the type of wood you might want may not be in stock, or those tiles you wanted in the bathroom are now way out of your budget. In some cases, you might find putting off the build for a year is actually better for your bank account in the long run when you get the quotes through if you haven’t signed off already – even if it is a disappointing thing to have to do.

For buyers of new and off-the-plan apartments, you probably won’t see too many issues personally. Construction on your new apartment may be pushed out for a few weeks, but if you’ve already bought you won’t see too many problems as contracts are a fixed price. If you’re planning on buying, it’s going to be a case of first in, first served, because developers are having to constantly re-adjust the sale prices of these apartments to cover increasing build costs: the more quickly you can buy an apartment, the cheaper it will be.

If you’re selling, you’re in a great position: the market is hot, hot, HOT! Expect to see a great return on your property, particularly if it’s a new build or had recent renovations, because that’s what everyone’s looking for right now. Older properties will also sell well though, as many fixer-uppers will want to get into the market somehow.

Written: 14 October 2021, Updated: 22 October 2021

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