Builders stuck with out-of-date contracts as construction costs surge

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“The situation between builders and consumers is very unsavoury and not a pleasant one. Consumers don’t understand, they’re going to find they’re going to be in limbo for so long and [it will] still cost an arm and a leg to get it finished.

“If consumers can see their way clear to negotiate and obtain a little bit extra money from their lender and do a deal with their builder to keep going, is a far better outcome than to close the door.”

Builder Alex McGough said rising construction costs mean he has been forced to build at a loss in many instances.

Builder Alex McGough said rising construction costs mean he has been forced to build at a loss in many instances.Credit:Jason South

Melbourne builder Alex McGough, of AMG Construction Group, has honoured every contract despite increasing costs that no longer reflect the price of the build and works seven days a week to keep his loss to a minimum.

“I’ve had to honour what I’ve quoted and just had to finish the job, I’ve had to be a bit creative in how I do a few things” – such as buying materials upfront before progress payments are made – McGough said. “Honestly, I’m there doing big days and hours to compensate for the loss.”

Newer and increased contracts merely reflect the true cost of a build rather than making a larger profit margin, he said.

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

“Honestly, I’m there doing big days and hours to compensate for the loss.”

Melbourne builder Alex McCough of AMG Construction Group

“Nobody is actually making any more money; everybody has had to raise their prices to stay where they were. If anything, builders are making less than they were even though there is plenty of work around. The word that keeps being thrown around is a profitless boom. If you think a home is expensive to build now, if enough builders and tradesmen get burnt that will thin the market down and it will cost to build a house a lot more in coming years.”

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

Higher building costs have hit consumers’ hip pockets as building approvals fell 23 per cent in the three months to July, compared with the same time last year.

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

Rising interest rates will compound the pressure of surging construction costs and will cause new build sales to fall, said Tim Reardon, the association’s chief economist.

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

Master Builders Association New South Wales executive director Brian Seidler said some builders were now quoting a price that is “cost plus” that adds in a certain amount of increase to material costs.

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

He said consumers were better off coming to an agreement with their builder, as walking away from a contract means a new contract would price in current costs.



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