Builders facing fast rising costs as upset buyers pay more
An Auckland first-home buyer says her dream of moving into a new house now looks out of reach after her builder pointed to rising costs to unexpectedly jack up the building price by more than 25 per cent.
It comes as a NZ Certified Builders Association board member says he believes costs and pressures on builders are the worst they’ve been in 40 years.
Chancellor Construction managing director Wayne Zeng agreed, saying he was facing long delays getting building materials and other fast-rising costs.
That had led him to ask buyers in the Cardinal West development in Massey, West Auckland, to pay more than originally agreed, arguing he will go broke if he doesn’t raise prices.
But the buyer, who didn’t wish to be named, said she can’t afford the new $501,000 price for the build portion of her house and land package, after it rose from an initial $396,000 fixed charge.
She said her home should have been finished by Christmas.
Instead, she’s now likely to abandon her dream of buying after having to pay a mortgage on empty land and now faces walking away from her deal with Chancellor Construction.
“It has taken the shine of what is supposed to have been a really exciting adventure for us as a family getting our own home,” she said.
New Zealand is in the middle of a building boom with a record 47,331 building consents for new homes in the year to September 2021, according to Stats NZ.
The boom has been driven by high housing demand and developers’ desire to capitalise on skyrocketing house prices.
But rising construction costs are increasingly threatening to slow down the speed of new builds and reduce the number of houses available for first-home buyers.
High freight charges, a lack of skilled workers at a time of low immigration and a shortage of building materials caused by Covid-19 shutdowns are behind the cost increases.
CoreLogic chief property economist Kelvin Davidson said costs rose at double the typical pace in the third quarter of this year.
“The Cordell Construction Cost Index reveals a national increase of 1.6 per cent in the three months to September 2021, down from the 2.2 per cent rise in the previous quarter, but still well above the typical quarterly increase of about 0.8 per cent,” he said.
The Government last month asked the Commerce Commission to investigate the supply of building materials and whether the sector can operate more efficiently.
But CoreLogic’s Davidson said cost pressures aren’t likely to ease in the short term.
NZ Certified Builders Association board member Mike Craig said small builders are doing it tough up and down the country.
Many are finding it impossible to plan their projects and when they should book contractors because they didn’t know what date materials would arrive onsite, he said.
Craig said he has been working seven days a week for the past four months trying to manage all the logistical challenges at his sites.
“I just got a call from another builder, his foreman has ended up in hospital because he couldn’t handle the stress.”
Craig said he’d enjoyed building over the past 40 years, but that had changed recently with pressuresthe worst they’d ever been.
Chancellor’sZeng said extra costs are hitting his company from all sides, with the recent level 4 lockdown interrupting local manufacturing.
“It is not small, it’s 10 per cent here and 10 per cent there,” he said.
Weatherboard that not long ago could be bought for $7/m had now jumped 300 per cent to $21/m, Zeng said.
Suppliers are also unable to say when plasterboard gib or seismic reinforcing mesh for concrete foundations can be delivered.
That meant builders risked being caught with workers on-site but unable to work.
“The builders will just be sitting on an empty foundation waiting for materials to come, and it is incurring costs every day.”
Zeng said his team had set reasonable fixed build prices when the homes were sold last year.
But the preparation of the land by other developers was delayed and was only completed late last month.
During the delay, the building industry had faced severe Covid-related price rises that were unprecedented in the past decade, Zeng said.
If Chancellor Construction went ahead with the builds at the original prices, it could not cover costs and would likely fold, leaving customers without homes and contractors without payment, he said.
“I would rather be upfront and honest than taking a deposit and vanish and put that hard-earned cash deposit at risk,” he said.
When the land became ready for building late last month, Chancellor Construction immediately told customers about the price rise before taking their deposits, Zeng said.
That gave them the chance to walk away from the deal without facing financial penalties, he said.
The Herald understands some Cardinal West buyers have done that and are using other builders to complete their homes.
However, other buyers are paying the extra price and continuing with the company. Othersare considering legal action.
Buyers spoken to by the Herald are unhappy at the delays and cost blow-out, saying it goes against their contracts.
They said their original contracts were signed at a fixed total price for the builds.
However in July, Chancellor Construction approached them, asking to increase the price by 7.5 per cent.
That led many buyers to include a new clause in their contracts.
It stated they would pay the increase, but that Chancellor Construction could not cite Covid as a reason to raise the price again if the land was handed over from developers before December ready for building.
Yet – even when the developers did deliver the land by late November – Chancellor Construction wanted to raise the price by a further 19 per cent.
It argued it can legitimately raise the prices under a separate clause about procurement, saying it is now hard to get building materials because of the August lockdown.
But the buyers say the lockdown was caused by Covid and that this violates the earlier agreement that no new Covid-related charges could be imposed.
For the mum and first-home buyer, the new costs have made her family’s dream of home ownership now feel unreachable.
They are trying to get into their own home “later in life” and are facing their own rising costs, while squeezing into a tiny rental apartment with two children to save costs.
“It is pretty sour and stressful because we don’t know if the bank will lend us more money, whether we can sell the land or how we can move forward from here,” she said.
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