When Lester Yip decided to demolish and rebuild his Sydney home in mid-2021, he says he never imagined that the project could be delayed for “at least half a year”.
That’s the reality for many owner-builders across Australia, with a serious shortage of labour and materials biting the construction industry, and placing pressure on those who are embarking on rebuild projects.
he decided to pursue his construction project when interest rates were at record lows in mid-2021.
“I signed a contract in June 2021 because my house is an older, 1950s bungalow and has had long-term maintenance problems - such as water leaks - which cannot be fixed after repeated repairs,” he said.
"So, last year, when the interest rate was still relatively low, I decided to demolish and rebuild the whole house. Basically, the original house was demolished, and the foundation was laid down and built again."
Mr Yip said he had expected the rebuild to be completed within 12 months, but now it could be delayed by at least four to six months. He’s also facing a double blow of rising interest rates and rents, as he’s had to find a rental property during construction.
“I saw other people [posting] on Facebook that the completion period of the whole house reconstruction is about 12 months, but according to the current situation, [the completion of the new house] may take 16 to 18 months. If it goes well, I believe there will be a delay of at least four to six months,” he said.
Labour shortages ‘worst levels on record’
While he had factored in a shortage of construction materials like timber, Mr Yip said he had not planned for the ongoing labour shortage.
“The demolition work started in January this year, but the support and roof of the new house were only completed in July, and the bricks were shipped to the site, but no one started laying them,” he said.
“The original contract was to be completed in 48 weeks, but due to problems such as heavy rain [in NSW], it was expected that the project would be delayed.”
Some construction companies have also reported that construction delays are more serious than during the height of the China trade ban on Australian products, and the situation will not improve for at least a year.
Australia had experienced a record boom in housing projects amid a chronic skills shortage. Source: AAP / Andy Brownbill/AP
The Housing Industry Association’s (HIA) recent Trades Report found the industry’s skills shortage was the highest since the report’s inception in 2003. This was despite a record number of houses being built across the country.
“The HIA Trades Availability Index declined from -0.90 to -0.92 in the June 2022 quarter. Any number below zero indicates a skills shortage and this result reflects the most significant shortage since the inception of the report in 2003,” HIA economist Thomas Devitt said.
“As at March 2022, there were over 100,000 houses under construction across Australia, a record high and almost 80 per cent higher than pre-pandemic levels … This is 78.4 per cent higher than the 57,514 houses under construction at the end of 2019.
“This elevated demand, and constraints in access to skilled trades from overseas, have resulted in this acute shortage of skilled trades.”
Mr Devitt said rise in demand for housing in 2020/21 was due to the , record-low interest rates and the pandemic trend towards space and amenity.
“This caused housing commencements to surge, but these projects are taking much longer than usual to complete, thanks to shortages of land, labour and materials,” he said.
Construction delays are ‘inevitable’
Sydney builder Jack Au said the construction industry was dictated by the supply of raw materials and labour, so delays in new projects were inevitable.
“The situation depends on the size of the project, and whether individual companies have problems such as shortage of materials or whether it is easy to hire people,” he said.
The federal government's HomeBuilder scheme boosted home renovations and rebuilds during the start of the COVID-19 pandemic. Source: AAP
He also said the shortage of labour in the construction industry was a serious issue, especially as the loss of workers increased during the COVID-19 pandemic and had not bounced back.
"Some people may have changed careers during the pandemic, and it is not easy to find them and get them back to work [in construction]," Mr Au said.
HIA said the most acute skills shortages were in bricklaying, carpentry and roofing. The least acute shortage was in electrical trades.
Despite these challenges, Mr Yip described his situation as "lucky" because he also learned of a friend who was forced to accept additional construction costs at his own expense.
“Our contract [with the builder] is a fixed-priced contract - we don't need to pay any additional fees,” he said.
“I also heard from a friend who is a lawyer that his builder is going to go bankrupt because of soaring cost prices.
“The builder said: ‘If you don't want to give extra money, I will go bankrupt, and your construction will be handed over to other builders, and then you will still have to pay the current market price.’ The two sides still have to negotiate how one person can complete the project in one step.
"Fortunately, these problems haven't happened to me yet."
Rent prices also adding to the pressure
Mr Yip said he and his family had had to rent a house during construction, and, although he added contingency in his budget for the project, construction delays were still placing extra pressure on his finances.
“The rent has actually increased a lot, and because I don't have a house to live in, I have to rent another place to live temporarily. If the project is delayed, it means that my lease will be extended, which is also a considerable amount. [Plus] now that interest rates are starting to rise again, the pressure is quite high,” he said.
To combat the rising cost of raw construction materials, Mr Au said customers could consider purchasing their own materials, but this could be a complicated process.
Data from the Australian Bureau of Statistics from the June 2022 quarter show building materials rising by 17.3 per cent on average in the past 12 months. This included a 40.7 per cent rise in structural timber materials.
