There’s No Silver Bullet for Rising Building Costs, but Having a Detailed Construction Cost Estimate is a Good First Step
It’s been tough reading the news lately.
Recent coverage of the war in Ukraine and the devastating impact of the floods in Queensland and New South Wales has pushed reports of COVID cases and lockdowns down the rankings, at least for the time being.
It’s enough to make us yearn for the daily briefings from the State Premiers.
Almost, but not quite.
Far from the optimistic resolutions of 31 December, 2022 has gotten off to a rocky start on many fronts. With rising costs across the board, it seems nobody is being spared, least of all the development and construction sectors.
Fueled by ongoing low interest rates and government incentives, demand for housing and new developments continues unabated, running headlong into multiple supply issues.
It takes a steady hand and a firm grasp of economic factors to navigate the current volatility in the property industry.
Even then, there’s no guarantee.
The spate of construction companies under severe financial stress seems to be on the rise.
Unfortunately some sizable and respectable companies such as Probuild and Condev have already fallen victim to the headwinds threatening the sector, and the fallout is likely to be far-reaching.
As hard as it is to read about, it’s a lot worse for the people actually at the heart of these stories.
Faced with fixed cost contracts struck months ago now entering execution phase, it’s unlikely we’ve seen the end of the pressure on the sector.
In these uncertain times, having a robust and reliable detailed construction cost estimate is more important than ever.
So why are costs rising?
The cost of timber and steel was already well on the rise during the pandemic, resulting largely from global logistical issues and shortages in the manufacturing sector.
This has now been compounded with the war in Ukraine generating economic sanctions on Russian oil. Not only that, the industry is further impacted by the fact that Russia is the largest exporter of soft timber globally.1
We’re all bearing witness to rising prices at the petrol bowser with a full tank of petrol hitting the back pocket of everybody.
Transport and logistics becomes more expensive. Sanctions on timber leads to higher prices on raw and finished materials. Concrete prices are spiking because the manufacturing process relies on cement, and making cement requires large amounts of energy in the heating process.
The flow on effects are endless.
Why are construction companies going under?
The construction industry has always been competitive. More often than not, builders bear the risk of price movements and inclement weather via fixed price, lump sum contracts. With minimal profits, often less than 5%, already factored in, it doesn’t take much of a bump to move the project from black to red.
Bring on a La Nina weather event, or a war in Europe causing macro-economic ripples felt across the world, or a global pandemic causing supply shortages and transport delays, it appears to be a perfect storm.
Even with continued demand driven by low interest rates and government incentives, growing revenue streams are not converting to profitability in many cases, and supply issues and materials cost increases do not look to be abating quickly
How can MCG help?
We know that not every builder is operating on the scale of Probuild and Condev. But regardless of size, it’s just as important to know exactly what costs you’re up against and understand how quickly they can move.
With the help of a detailed construction estimate template we can work with you to determine your costs ahead of time and stress test for likely supply chain movements.
Or even the unlikely ones.
MCG Quantity Surveyors are acutely aware of the demanding and competitive nature of the construction industry. We make it our priority to ensure turn-around times are consistently met and that our clients are kept up to date with the status of projects and reports.
We may not be able to control rising prices or materials shortages, but we can definitely help get a firm handle on your detailed construction cost estimates.
We think that’s a pretty important step.
Contact us now for an obligation free quote on 1300 795 170 or go to our website mcgqs.com.au for more information.
References
1 Merlehan, Adam “The real reason why construction giants Condev and Probuild collapsed” 22 March 2022 <SmartCompany.com.au>