It’s been 75 weeks since Perth couple Cassie and Julian Kirtisingham signed a contract to build a five-bedroom, two-bathroom home in the city’s southern suburbs.
Key points:
- Stimulus grants have created a boom in the construction industry
- But the industry has failed to keep up with demand
- This has left many families facing longer wait times and price increases
Like many new home buyers, the couple signed up at the end of 2020 so they could take advantage of $20,000 from the WA government and $25,0000 in federal government stimulus grants designed to keep the construction industry alive. during the pandemic.
The slab was laid in September last year, qualifying them for the grants, and this was followed by the lower level of bricks in December.
But, as Ms Kirtisingham documented on an Instagram account illustrating the realities of building a home in Perth’s current market, there has been no construction on their block since.
“Unfortunately, even though our wood has been there for six weeks, we are almost 72 weeks away and no work has been done since early December,” she posted in early April.
However, since signing their contract, the couple said their manufacturer had given them two price increases, two contract extensions and notified them of another.
The cost of building a house in Perth jumps by 16%
Their story is not unusual in Perth’s overheated homebuilding market, where the rate of inflation is the highest of any capital city in the country and the cost of building a new home has risen by nearly 16% in the first quarter of this year.
In WA, the home building industry is tightly regulated, including the widespread use of fixed price contracts.
Since many contracts were signed to qualify for the 2020 stimulus grants, home construction costs have risen sharply and are pushing many builders and new home buyers to the brink of financial abyss.
These cost pressures are caused by many intertwined factors, including building material shortages affected by global supply chain issues and the Russian invasion of Ukraine.
The shortage of skilled labor in WA caused by the closure of national and international borders and a housing construction industry – unprepared for strong demand after many years of slump – have also contributed.
Stimulus payments had ‘unintended consequences’
In April, two WA construction companies, Home Innovation Builders and New Sensations, appointed liquidators, leaving some clients with half-built homes.
It’s a situation that Urban Development Institute of Australia chief executive Tanya Steinbeck calls one of the “unintended consequences” of construction stimulus payments, which have achieved their goal of creating a pipeline of work and protect the jobs of workers during the pandemic, but also to create a boom level of demand.
“He did his job and more.
“It’s just what has happened since then, no one could have anticipated it. »
The impact of the stimulus in WA was particularly strong as the state government also offered grants, unlike those in larger states like NSW, Victoria and Queensland where only the federal HomeBuilder grant was available.
WA government flooded with applications
New entrants to the housing market could also access the $10,000 first-time homebuyer subsidy as well as stamp duty concessions, a benefit of almost $70,000.
The grants were announced in early June 2020, at the start of the COVID-19 pandemic when a housing price slump was expected, and had tight deadlines, which were later extended.
Financial records from the WA government show that more than 19,000 applications for its Building Bonus were submitted by the end of January 2021, of which around 14,000 were received by December 2020.
“It was something that we hadn’t anticipated and weren’t prepared for because we were entering this space after five years of historic lows, so we didn’t have the manpower to be able to do in the face of such a sudden increase in demand. »
The family faces another year in cramped quarters
While the Kirtisinghams have said they are grateful for the government grants, delays to their project have cost them dearly and, like other borrowers, they also see interest rates likely to rise soon.
“But we know other people who have longer delays and who have [bigger] price increases than us,” Ms. Kirtisingham said.
They expect to spend the next 12 months paying rent, mortgage and utility bills on two properties, while living in a small space with three-year-old Ruby and little Chloe.
“We signed before I was pregnant with our seven-month-old child,” Ms Kirtisingham said.
“We rented an apartment two by two thinking surely by February [2022] it will be done by then, but we still have a seven month old in our room because we have no other room. »
Merchants cannot meet demand
On the other side of the equation, many trades – such as masons and carpenters – cannot keep up with labor demand.
Bricklayer Adam Ciccarone, a contractor for a home building company, said he had a four-month backlog, which was welcome after tough years.
“The last five to six years, when it was quiet, was the worst we’ve seen,” he said.
“But it’s certainly the busiest, but it’s only busier, I think because of the lack of trades, the lack of masons who have come through. »
Mr Ciccarone said some bricklayers were now being paid between $2.80 and $3.50 a brick, up from prices of around 75 cents about five years ago.
“I could see that day coming when the rates were going to go up because I didn’t see any apprentices coming through, the masons leaving,” he said.
But he worries whether some builders will be able to survive escalating costs and a shortage of tradespeople.
“I don’t think I’ve seen a boom where builders have gone bankrupt, shut down, because they can’t afford to pay contracts and bills like now,” he said.
“To be honest, I don’t know how many builders are surviving right now. »
Subsidies saved jobs, minister says
Housing Minister John Carey said he recognized there were significant challenges, with the WA Government considering additional protections for residents affected by builder insolvencies.
“We’ve seen the renovation industry explode because people are investing in their homes because they couldn’t travel,” he said.
“We have seen an increase in net migration to Western Australia, so there has been this demand for housing.
“Then we have supply chain issues. So all of these types of problems that combine result in increased demand for housing and increased costs. »
Mr Carey also said he believed the subsidies were justified, given the bleak outlook for the economy in the early months of the pandemic, and that it had saved jobs in the sector.
“So I understand that we are under enormous pressure, but I still prefer to deal with these issues rather than the alternative scenario. »
Politics came ‘fast and furious’ with ‘no consultation’
In a report on the impact of COVID-19 housing policies, the independent Australian Housing and Town Planning Research Institute said the rapid introduction of WA and federal grants was “laudable” but “has generated a number of unintended results.
“These results, particularly with respect to material and labor shortages, cost increases and project delivery delays, were largely due to the unforeseen level of grant demand and the design of the HomeBuilder program itself,” he said.
Some of the housing and finance industry members interviewed for the report suggested that the programs might have worked better if there had been wider consultation before their introduction.
“It happened fast and furiously, but there was no consultation between the federal government and the state government,” said a finance representative.
“So why is it important? This means you had a policy in place that was not ready to be implemented. »