Expect higher Owners Corporation maintenance and construction costs as the apartment construction boom puts upward price pressure on many trades!
|According to ABS figures, more multi-unit dwellings were approved for construction in the first five months of this year than the whole of 2011 (The low in the property cycle). This has led to massive increases in demand for trades and construction services, add a national contractor going into administration and you have the recipe for some massive cost increases.
|What are the effects?|
The effects of increased demand includes 17,000 more workers being added to the construction industry headcount in the 12 months to May 2015 according to ABS figures. The ABS figures also showed trades, including partitions and linings, tiling, formwork and mechanical services, continue to experience higher price escalation compared with the broader market.
Job site SEEK says over the last 12 months advertisements for plumbing and landscaping trades grew by more than 50 per cent while ads in building trades, carpentry and cabinet making and air-conditioning and refrigeration grew by more than a 25 percent.
The HIA (Housing Industry Association) trade index is showing under supply in many trade areas particularly in plumbing, bricklaying and electrical trades with all capital cities except Adelaide showing rising prices caused by high demand exceeding available supply.
The concrete trade will have massive cost gains as a national contractor recently went into administration while the remaining industry is trying to fill the gap left in the market and assist with some major unfinished projects.
It seems the reduction in demand created by the slowdown in the mining industry has all been picked up by the apartment construction boom with added demand on top. A recent conversation with a large construction contractor indicated that individual unit construction costs are around $25,000 to $35,000 more than at the beginning of 2015.
|What does this mean for Owners Corporations?|
It means a careful eye needs to be kept on Sinking Fund Account balances and insured values as the market moves at well above average cost increases. A top up or professional review might be in order.