Labour and material shortages hikes price of new houses: how to keep your build costs down

Labour and material shortages hikes price of new houses: how to keep your build costs down


The latest materials and labour shortages have had a significant impact on the average cost of new detached houses, so how can home builders keep costs affordable?

The latest Australian Bureau of Statistics (ABS) figures found that the averaged detached home cost grew by 19.6% in the 12 months to January, according to analysis by the Australian Financial Review. Meanwhile, new private sector house approvals fell 17.5% in January, and 29% year-on-year.

High building materials costs and labour shortages because of lingering pandemic and disruptions to the supply chain, paired with a backlog of work from last year’s lockdown restrictions, have created a perfect storm of price increases for new builds.

In fact, recent CoreLogic data for Q4 2021 found that national construction costs increased 7.3% over the calendar year. This was the highest rate of annual growth recorded since March 2005 for the construction industry thanks to lingering supply issues. The end of the HomeBuilder scheme for would-be homeowners has also had a significant impact on labour shortages.

Western Australia and South Australia recorded annual CCCI growth of 7.9%. In NSW, CCCI increased by 7% annually, Queensland’s CCCI increased by 7.3% annually and Victoria’s CCCI increased by 7.1% annually.

Thankfully, there are strategies new home builders could consider to assist in reducing the financial pressures of constructing their dream home.


How to keep the costs of new home build down

Let’s explore how you can aim to keep the costs of your home build down amidst rising construction costs in 2022.

The value of volume builders

In Australia, there are two main builder types; volume or custom builders. Volume, or project home builders, are larger companies that will typically take on hundreds of building contracts from their set design catalogue. Custom builders, as the name suggests, will create bespoke homes for their clients, and are typically smaller companies working on fewer projects.

To keep the cost of building a house down, it’s generally recommended to use a volume builder and a standard plan. This may save you from bringing in a separate party to create plans – which can cost a serious chunk of change. Further, any amendments you need to make on bespoke plans may cost you, as opposed to opting for a standard plan.

And, as the company builds hundreds of homes a year, you’ll benefit from this experience by being given more accurate timeframes and overall cost estimates for your new build. This can be especially useful when applying for a construction home loan.

Consider recycled materials

One of the biggest factors impacting the sky-high cost of a new home build is timber shortages. Much of this has actually been a result of bushfires devastating pine plantations across the country, as well as in the US and South America.

If a material you’re considering using in your home build is in short supply, it may be worth considering recycled construction materials you can access more easily. Not only is this a more sustainable decision, but it may help to reduce your overall building supplies cost. Materials such as recycled steel, sawdust, cement composites and pressed straw panelling may all be taken advantage of for your more affordable home build.


Eco-friendly housing construction

Speaking of sustainability, another factor worth considering for residential construction is the long-term expenses. This is where opting for energy-efficient materials, such as insulation or heat resistant paint, or products like solar power, may come in handy. Also, energy-efficient heating and cooling is a must when building a home in Australia.

Look for spaces where you can make more sustainable choices to help keep your future energy bills much more affordable. Making your house more energy-efficient can help you better manage your household expenses and construction loan costs for years to come.


Low interest rate construction loan

When comparing your options to finance your new build, it’s no secret that the interest rate charged is one of the most significant factors affecting overall cost.

Unlike a traditional home loan, a construction home loan will allow eligible borrowers access to the funds they need across the phases of construction. This is commonly known as a draw-down or progress payment.

You will need to have your budget and construction plan finalised before you can apply for a construction loan, so this is where opting for a volume builder may come in handy.

As the construction progresses, you’ll typically receive funds at these following stages:

  • Slab – The foundation, including plumbing and waterproofing.
  • Frame – Frame construction, including windows and roofing.
  • Lock up – Refers to adding external walls, doors and insulation.
  • Fixing – The internal fixtures and fixings.
  • Completion – Final installation requirements, such as painting.

Keeping on top of your construction loan repayments can be a major ongoing expense for any new home builder, whether you plan to live in the property as an owner-occupier or rent it out as an investor.

Luckily, Reduce Home Loans offers some of the lowest rate home loans in the market. Reduce Home Loans is currently offering construction loans with interest rates starting with a ‘1’.

By considering a Reduce Construction Loan, you can start your 2022 new home build journey on a positive note. Despite the current negative news cycle, you can rest assured knowing your ongoing repayments may be lower than average by choosing a competitive home loan provider.


For more information about how you could finance your new home build, give us a call on 1300 722 823 and find out what’s right for you.


Any statement/s are general in nature and do not take into account your financial personal situation, objectives or needs. You should consider whether any statement/s is suitable for you and your personal circumstances. Before making any financial decision, consider your circumstances and the product disclosure statement.

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