Cost of construction in a falling property market?

Hi all,

We are looking at building a new house with Metricon (PPOR). What are peoples thoughts on builder costs in a falling market? My gut instinct tells me that quotes by builders will fall as house prices fall, but I tend to not trust my gut instincts only and would appreciate your input for those in the know.

Thanks.

 

Labour & material costs are not falling, so I doubt builder's prices can come down (unless they want to discount their margin). Project home builders like Metricon and others are on thin margins as it is. They rely on volume.

 

Generally prices don't come down a lot. They may choose to reduce their margins and try and screw down their labour rates with subbies but that might end up with sub par quality.

Perth has been going through this for last 3years. Our construction costs haven't gone down much but builders/companies going bust has certainly increased. Although prices don't go down much you generally will have a quicker build as everyone has less on their books so they tend to work promptly to get cashflow in.

 

I keep hearing they can negotiate / screw down suppliers as well as trades. I think WA has the lowest construction starts in 30 years so local suppliers are hurting. @Westminster @boeman is this the case or is it all a bunch of baloney?

 

@Big Daddy - all of the subbies have moved back to the eastern states to follow the $$$.

Sad others have pointed out, construction costs don't fall dramatically, only margins get squeezed. Innovation brings new & more efficient methods which may bring down the cost of some trades but on the whole labour costs are fixed (award system, statutory obligations, set conditions) - those that are underpaying are effectively ripping someone off.

The cost of materials rarely drops. You often see massive increases in the cost of steel reflected in the price of reo or beams etc.

 

I think they were mentioning they negotiated heavily for the price of their glass splashbacks and balustrading.

I know a few people building with lowish end builders and they are having huge delays due to no trades... at the price the builder is paying.

 

Certainly they will try and screw them down - they will shop around more and see if they can get stuff cheaper but sometimes that is false economy as the replacement supplier might be not as good etc.

So they might all be swapping cabinetmakers around more than they change their undies but the costs of supply to the cabinet makers hasn't changed and in fact has often gone up so the pressure is being forced down the hill.

Forcing profit down to the lowest common denominator, ie putting a ceiling on how much they will pay per brick to be laid, tile per sqm or paint to win a project can end up in tears when it takes longer to find trades who will accept that rate and then the quality may also be questionable.

Sometimes the screw down will work, sometimes it won't. I have to recognise that the builder needs to make a profit if they are to stay around in business and pay a fair price to get good trades.

 

The builders surviving that I know of are just operating on a lower margin or doing giveaways of air con or Miele appliance packages. Actual build costs with the more stable builders hasnt changed as they are loyal and a bit emotional with their trades.

Easy to do since staff numbers at most places have halved anyway.

On the plus side, us smaller operators are in with a better chance on most quotes as we are getting competitive rates on materials since suppliers are hurting.

 

Keep in mind that there's markets within markets, and they're not all dropping.

We're currently building and I discussed the current market with my builder. He indicated that the tightening of finance is having an effect on his business as a number of deals had been put together, but the clients were unable to obtain finance.

I asked if this was leading to more tradies being available (I was hoping they'd be able to get the job done faster).

The builder indicated that there remains a general shortage of tradies, despite there being less residential development. The reason is that various government projects are eating up a lot of the supply of tradies.

 

In Sydney costs are coming down and . But mostly what I noticed my trades are available quickly now.

Right now today I booked tiler for a balcony job. Normally 3/4 week notice. He is starting after Australia Day.

 

We have some of the highest paid tradies of any country I know of. So like all industries it will give.

East coast is now slowing.

Markets within markets .

Sorry this is not flying overall market in most cities is easing.
Tassie is now holding so is Adelaide Brisbane houses maybe but mostly it's a slowing market.