Builders are stuck with lapsed contracts as construction costs rise

“The situation between manufacturers and consumers is very unpleasant and not pleasant. Consumers don’t understand, they’re going to realize that they’re going to be in limbo for so long and [it will] still costs an arm and a leg to complete.

“If consumers can see their way clearly to negotiate and get some extra cash from their lender and make a deal with their builder to move on, that’s a much better outcome than closing the door.”

Builder Alex McGough said rising construction costs meant he was forced to build at a loss in many cases.Credit:Jason South

Melbourne builder Alex McGough of AMG Construction Group has honored every contract despite rising costs no longer reflecting the price of construction and working seven days a week to keep losses to a minimum.

“I had to honor what I quoted and I just had to finish the job, I had to be a bit creative in how I do certain things” – like buying materials up front before payments progressives are made – McGough said. “Honestly, I’m here putting in big days and hours to make up for the loss.”

Newer and more contracts simply reflect the true cost of a build rather than generating a bigger profit margin, he said.

“I’m not making money anymore, I’m just trying to account for trades and materials at a higher cost,” he said.

“Honestly, I’m here putting in big days and hours to make up for the loss.”

Melbourne builder Alex McCough of AMG Construction Group

“Nobody makes more money; everyone had to raise their prices to stay where they were. On the contrary, builders earn less than they used to, even though there is a lot of work around. The word that keeps coming up is profitless boom. If you think a house is expensive to build now, if enough builders and craftsmen are burned, it will shrink the market and it will cost a lot more to build a house in years to come.

McGough said two potential clients put their plans on hold after receiving higher-than-expected quotes.

Rising construction costs hit consumers’ pockets, with building approvals falling 23% in the three months to July, compared to the same period last year.

But they remain at high levels and are still 12% higher than the same three-month period in 2019, according to the Housing Industry Association.

Rising interest rates will add to pressure from soaring construction costs and lead to a drop in new-build sales, said Tim Reardon, the association’s chief economist.

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“The cost of borrowing and the cost of building are now higher, so it’s a cumulative impact,” he said.

Master Builders Association New South Wales executive director Brian Seidler said some builders were now quoting a ‘cost plus’ price which added some increase to material costs.

“That means for every increase, whether it’s materials or labour, there’s an agreed percentage on top of whatever it is. It’s to cover their costs,” Seidler said.

He said consumers are better off making a deal with their builder because opting out of a contract means a new contract would be charged at current costs.

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