Building a home? Hidden costs to look out for in 2022
With house prices soaring in capital cities and the regions, the great Australian dream of home ownership can seem like just that: a dream.
One way around the high costs of established properties is to look at building your own. There are plenty of companies that offer land and home packages, not to mention just buying land and going from there.
But it's not always cheaper. The pandemic has brought along a new set of potentially costly risks.
How shipping costs can slow down your plans
As we know, most items nowadays are coming from China, and when you're building a property this is no different. The shipping costs in the past 6 months have skyrocketed and we are now seeing costs up to 500% higher than we did in 2019.
What this means for you and me is a bigger price tag on building.
The reason for this is similar to why land and home packages tend to be more affordable than buying land separately and building. The companies that offer packages can offer better deals to builders and suppliers, which in turn makes it more cost-effective for them so that they can offer you a good price.
With shipping, larger economies and companies can also order at a larger scale, so they are ahead of us (Australia) in line for shipments. So the global supply and demand issues that are in play mean we see a huge delay in time frames for landed goods – and increased costs.
It started before these shipping problems
Two of the country's largest timber mills, Tumut and Tumbarumba, have only been able to provide reduced numbers off the back of the bushfires in 2019/2020. The effect of this has only been felt since June, meaning a slowdown in the local timber supply and a heavier reliance on overseas materials.
In the latest Producer Price Index report, the Australian Bureau of Statistic indicates that prices for key building materials increased by between 17% and 43% over the year to December 2021. This includes:
- Reinforcing steel
- Steel beams
- Structural timber
- Plastic piping
- Copper piping and fittings
- Plywood
- Board and timber windows
Other trades, including general building, landscaping and carpentry have also shown year-on-year increases of between 9% and 16%.
The added cost of shipping issues
This is where the added issue of shipping lines, prices and the AUD/USD comes into play.
Many of the world's largest shipping lines are less concerned with getting goods to Australia as they are getting them to the US and Europe – and then back to China for re-loading.
This is partly due to greater demand from regions with larger populations, as well as distances: ships are able to do several trips to the US, Europe and the UK in the same time it takes to travel to Australia and New Zealand.
Transit times are also key as Chinese factories are running out of space to hold goods, then pausing production as they wait for available shipping containers to clear the warehouses again.
Greater lead times for materials and trades have led to pressures on project completion times. You could face delays that potentially add to other costs, such as renting while you wait for the building's completion.
Another overlooked cost factor is currency exchange.
Nearly all shipping and freight companies bill in US dollars. If they have prepaid or forward-bought the US dollars, then you don't know what it will cost. If they haven't, then you can be exposed to exchange-rate fluctuations, which have moved between $0.70 and $0.75 in the past few months.
This means that a shipping container cost of around US$15,000 could change to between US$20,000 or US$21,500. And that's before factoring in the cost of goods and the added USD to CNY exchange rate movements that can also have an impact.
What to do if you're building a home now
These increases to so many components of a new build can add up and put pressure on everyone involved, from the future home owners to the builders and suppliers.
So if you're planning to build or are already in the process, an important step is to talk to your project manager, builder and even the lender about potential delays and price changes. That way you'll all be on the same page and may even get more information from other people involved, such as builders who have been working through the shortages over the last couple of years.
Other practical ways you could keep on top of potential issues include the following:
- Putting orders in ahead of time
- Factoring supply issues and delays into the building schedule
- Discussing contingency plans
- Looking at different suppliers, fittings, finishes and other aspects of the build so you can pivot if needed
- Sourcing products locally if and when you can (although this can come with other costs)
In some ways, building is like a larger-scale version of buying foreign currency: you don't know exactly how much it will cost until it's completed. But the more knowledge you have of what's happening right now, the better prepared you can be for any changes that affect your budget – and your final goal of owning a home.
If building a home isn't quite the right move, learn how to buy an existing house with this step-by-step guide.
Chris Broadfoot is the founder of CB3 Global Payments and helps businesses with international trade strategies, including risk management and foreign exchange markets.
Disclaimer: The views and opinions expressed in this article (which may be subject to change without notice) are solely those of the author and do not necessarily reflect those of Finder and its employees. The information contained in this article is not intended to be and does not constitute financial advice, investment advice, trading advice or any other advice or recommendation of any sort. Neither the author nor Finder has taken into account your personal circumstances. You should seek professional advice before making any further decisions based on this information.
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