It appears house hunters are now gunning for homes that are already renovated as construction becomes increasingly more complicated and costly.
McGrath Estate Agents CEO John McGrath said a shortage of raw materials and tradie labour and the rising costs of construction are becoming a challenge for property owners and builders.
“More owner-occupiers and investors are looking for renovated homes because they don’t want to go through the same issues that renovators and new homeowners are enduring now,” he said.
“This is an interesting change because at the end of market booms, we typically see more demand for cheaper original or run-down homes as buyers’ budgets become squeezed by runaway price growth.”
This observation was consistent with the commentary of Herron Todd White CEO Gary Brinkworth, who said homeowners and investors are being drawn to completed homes rather than those with renovation potential.
“Given costs are predicted to be elevated over the coming one to two years, I’d venture that finished homes will not only retain their price premium for some time, but the value spread between renovated and unrenovated properties will, in all likelihood, get wider,” he said.
What’s pushing up construction and renovation costs?
CoreLogic’s latest Cordell Construction Cost Index (CCCI) showed a 9% increase in costs over the year to March 2022.
This increase was highest annual gain in construction costs since the introduction of goods and services tax (GST) in 2001.
Mr McGrath said there are several factors that continue to hike up the costs of construction and renovation, one of which is inflation.
“Inflation is rising, which means the cost of most goods and services in the economy are going up — the latest data shows inflation running at 5.1% per year, well above the central bank’s target of 2% to 3%,” he said.
COVID-19 disruptions on the supply chains globally are also a big factor, given that it resulted in a very limited import of building materials.
“Demand is high because most countries are stimulating their economies through new infrastructure projects, so lots of countries want to buy raw materials like timber and steel,” Mr McGrath said.
Construction demand among Australian households have also been rising, on the back of higher savings and the HomeBuilder scheme.
“All of this has led to a spike in demand for materials and labour, and this is pushing construction costs up at a faster rate than inflation,” he said.
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