Registered Master Builders Rotorua president Martin Dobbe said he was trying to be optimistic instead of pessimistic. Photo / File
Registered Master Builders Rotorua president Martin Dobbe said he was trying to be optimistic instead of pessimistic. Photo / File
Rapid rises in the cost of construction materials are among a "perfect storm" of pressures battering home builders.
Project budget blowouts have swept the country on the back of materials cost increases of up to 30per cent.
It has left some to walk away from fixed-price contracts — a pricingmethod favoured by buyers and banks but which the industry says is increasingly unworkable.
The Government has been criticised for not doing enough to intervene.
Minister for Building and Construction Poto Williams said while the Government did not regulate retail prices, it had already signalled an intention for building products to be the subject of a market study by the Commerce Commission.
Minister for Building and Construction Poto Williams. Photo / NZME
New Zealand Building Industry Federation chief executive and Construction Strategy Group executive director Julien Leys said there was massive volatility around material prices.
He was aware of some builders, contractors and homeowners walking away if they had signed up for fixed-price contracts that ''were now out the window''.
''It may have been three months since they signed the contract and if they can't get any agreement or variation to accommodate the increase in prices, which could be 30 per cent, they are preferring to take a smaller hit. Rather than the bigger hit to their overall cash flow if they proceed with the work.''
Leys said fixed-price contracts were favoured by the banks but ''they aren't going to work anymore''.
''The big shift for the industry will be moving away from that to allow for variations.''
Projects were blowing out by ''huge amounts'', he said.
As an example, he said steel costs had jumped by 15 per cent and had a lead in time of six to eight months.
Registered Master Builders Rotorua president Martin Dobbe said he was trying to be optimistic not pessimistic but he had warned clients of increasing costs.
''I haven't had anyone say they won't do it. I am saying if your build price is $500,000 it could go up by 5 per cent as some of those products in the $500,000 might increase by 20 per cent.
''We're really reluctant to pass those costs on to start with and it's new ground for most builders.''
He said those most at risk were the smaller builders who couldn't get products.
''We can still get product although there are still 20-week delays on GIB and if you are a smaller builder you are not going to get priority.
''So those guys are going to run out of work.''
Peter Cooney director of Classic Builders, which operates in the Bay of Plenty and nationally, said material costs were rising and suppliers were pushing up rates.
For an average new build in Tauranga, for example, the price had increased about 40 per cent or $80,000 in the last 12 months and materials by up to $50,000. This was also happening elsewhere.
''For example, we paid $150,000 for sections in Christchurch and six months later we are paying $350,000. That increase is huge.''
Classic Builders director Peter Cooney. Photo / NZME
The sector was in the biggest boom it had seen in decades and land availability was an issue.
''We've got massive price escalations, we've got supply issues and a labour shortage. That's the perfect storm.
''All of this is leading to a bit of a disaster... the problems have been compounding every year and we just haven't been building enough.''
Cooney said ''it is scary stuff'' and would be hard on potential homeowners.
Builders were putting escalation price clauses in their contracts and developers were finding it harder to get financial backing from banks.
The Government needed to do something to secure the supply chain offshore.
Insight Architecture architectural director Matt Hodson said demand for the company's services had doubled since the first lockdown.
The biggest challenge was finding new design staff to help meet the demand, while the shortage of builders and construction materials was resulting in big increases to building costs and longer construction times.
''Until the Government opens the borders, letting more builders and tradies into the country, we will struggle to meet the labour demand.''
It was now common to see 10 per cent or more added to projects to allow for material cost escalations.
NZ Institute of Quantity Surveyors president Martin Bisset said consultant surveyors were adding in caveats to their project estimates, while contractors were seeing their suppliers and sub-contractors offering fixed rates for shorter periods like one month.
''There is a high chance that some contractors will be caught and not be able to meet their contractual obligation, thus resulting in receivership or liquidation. There is no silver bullet to resolve the issue quickly.''
He said it was difficult to put an exact figure on the increased costs of projects, but some examples of average material increases from May to August 2021 were: structural timber up 11.5 per cent; timber cladding 7.2 per cent; mouldings 6.9 per cent; particle board 6.2 per cent; concrete and reinforcing 3.6 per cent and rainwater goods 6.3 per cent.
Registered Master Builders vice president and owner of Calley Homes in Tauranga, Johnny Calley. Photo / NZME
Registered Master Builders vice president and owner of Calley Homes in Tauranga, Johnny Calley, said the industry wasn't a high-margin sector and escalating costs could put some out of business.
''I think consumers have to be accepting there are going to be multiple delays and cost increases. They should be talking to their builder on how they can share the load of that.
''Because ultimately, if they don't, it will be fatal for both parties if building companies go bust."
Construction Industry Council executive director Graham Burke said in the 1980s and 90s fixed-price contracts with no escalation clauses were impossible ''and we worked our way through that''.
He said cost escalation risks again needed to be shared.
Minister Williams said the Construction Sector Accord was working with industry to inform ministry guidance on product substitution information, raising awareness of alternative products and reducing reliance on constrained building products.
An ANZ spokeswoman said the bank would still lend to customers building a home without a fixed price contract.
"But, as is the case with all lending, the criteria differ depending on the contract type. Unfixed contracts that could see costs escalate carry greater risk as they don't have the price certainty that a fixed price contract offers."
