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Orange builders feel the pinch as bad news arrives by email
June 28, 2022
By Peter Holmes
Orange builder Mick Banks is flicking through his email inbox. These days, bad news appears more frequently.
“I’ll read you one,” says the man behind Orange's Banksia Building.
“‘Thank you for your ongoing support during these challenging times. Due to price increases throughout suppliers and other factors outside our control unfortunately effectively immediately we have had to increase [the price on] some of our products’.”
He scrolls down the emails, lands on another one.
“Bluescope,” he says. “End of the month, going up 15 percent.
"Every month we’re getting letters like this," he adds, "so if you’re not on top of it you're going to go down the gurgler.”
In his 20 years in the building game Banks has experienced cyclical price rises on materials. But not like this.
“I’ve never seen it increase this dramatically and I've never seen it increase with nearly every product," he says.
“Every year certain items go up without fail - they might go up six percent or 10 percent or five percent - but they’re calling a lot of these increases out-of-cycle increases.”
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He gives the example of timber: “It’s gone up nearly 100 percent in the last 18 months. Every month or so - ‘Oh timber’s up 10 percent; timber’s up another 30 percent; up another 10 percent’.
“[Or] we might get three weeks’ notice to say corrugated iron is going up - you can’t factor that in.”
It used to be that Banks could give a quote on a build six to eight months before construction began and be reasonably confident that there would not be excessive cost blowouts.
Those days are gone.
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“[The total build] could’ve gone up 10 percent in that time,” Banks says. “The chances are it’s going to go up."
Banks asks that clients of builders around the city not get upset over cost increases “because you’re better with them putting up the price a little bit than going broke”.
“If the builders keep trying to cop [the price rises without passing them on] then they will end up going broke, and you don’t want to go down the path of home warranty insurance if the builder’s gone broke because you’re going to be out of pocket and it’s going to take a lot longer to get sorted.”
He doesn’t relish those conversations: “That’s the hard part. The builders need to be honest with the client when they sign them up”.
In the building industry there are fixed price contracts and cost-plus contracts. It is not unusual for a build to have elements of both.
While fixed price contracts give the buyer peace of mind, they can put immense pressure on a building company in times of high inflation. Cost-plus contracts, where the builder can factor significant price hikes into the deal, gives building companies some security.
But Banks says there can be snags with cost-plus contracts, for example "the bank won’t give the client funding because the bank wants to know what the final price will be. It’s a bit of a catch-22".
Some builders are providing a cost estimate ahead of getting council approval on the development application, and then finalising a quote “just before the start of building”.
Banks describes the situation as “tricky” but said "it’s just about being honest with the clients”.
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He hasn’t heard of any construction businesses in the Central West being in a financially precarious position.
“But in general in NSW there’s the potential there’ll be a lot more people doing it tough in the next six to 12 months,” he said, pointing to the collapse of a number of building companies around the country this year.
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