IS NOW THE RIGHT TIME TO RENOVATE?
Since the start of COVID lockdowns back in 2020, we’ve seen the rise in home renovations go crazier than a group of mums on a girls’ night out. The Australian Bureau of Statistics reported that Aussie renovators spent a whopping $12.3 billion on home renovations in 2021 - up 33% on 2020 and almost double what was spent a decade ago!
They say ‘home is where the heart is’ and being locked down at home has certainly seen people want to love their homes a whole lot more. With rising house prices across much of the country, we’ve seen many homeowners take advantage of the equity in their properties to improve the standard of their homes. Home offices, kids’ rumpus rooms and larger family living areas have been top of the list for renovators as their families spend more time at home together.
But, as if a global pandemic wasn’t enough, the past few years have thrown devastating bushfires, catastrophic floods, the Russia/Ukraine war and an Australian Federal election into the mix and then last week the Reserve Bank of Australia flung their first cash rate rise in over a decade at us, adding fuel to the raging flames! This combo has led to rising interest rates and unstable political and economic environments, creating the perfect storm to have even the most seasoned renovators feeling a little wobbly about their upcoming reno plans… and enough to have rookie renovators shaking in their boots.
And we honestly think that no one will ever regret adding functionality and flexibility to their home. In our minds, the solutions to the current situation are not quick fixes and there are few indicators that things will vastly improve in the immediate future meaning we’ll continue moving forward, adjusting the scope and budget of our projects if need be. Being flexible with your plans and expectations is more important than ever, hence why we live in activewear! #anyexcusewilldo
The likely alternative to renovating is moving house but when you factor in stamp duty and agents’ fees, it often makes more sense to renovate than relocate. So, before you throw the baby out with the bathwater and park the idea of renovating altogether, let’s take a look at the current situ and how we are running with it…
5 FACTORS AFFECTING CURRENT COST & DEMAND
So, what’s going on? Here’s a quick look at some of the factors affecting the current environment:
THE C WORD
We’d be thrilled if we never had to factor this guy and the chaos he’s caused into any of our plans again but this decade’s buzzword “COVID” continues to wreak havoc with the building industry. Isolation requirements and international shipping delays have caused disruption both to labour and to building material supply chains.
DEMAND IS THROUGH THE ROOF
If you can find a builder to build you a roof, that is! The Australian Federal Government’s ‘HomeBuilder grant’ provides eligible individuals and couples with $25,000 towards building or buying a new home or substantially renovating an existing home. This has created a local surge in demand for new homes and renovations, in addition to relaxed mortgage lending criteria and historically low interest rates. Will this change with the latest RBA announcements? We’ll have to wait and see.
DECREASES & DEVASTATION
A global surge in demand for construction materials, particularly for timber and steel products, coupled with pandemic-related international supply chain issues has seen a huge shortage of supply across the globe. Devastating bushfires both in Australia and internationally have crippled the timber industry and Chinese steel production was wound back due to predicted supply chain decreases at the beginning of the pandemic that did not eventuate.
The recent East Coast floods that left much devastation further disrupted supply chains and added to the demand for materials and trades. Insurance work is moving to the ‘front of the queue’ by offering higher prices for trade work. The knock-on effect from the 2020 bushfires also continues to affect timber supply.
THE WAR IN UKRAINE
The impacts of Russia’s invasion of Ukraine are being seen in the construction industry in Australia with a new 35% tariff for engineered wood products sourced from Russia and Belarus. A huge 40% of Australia’s engineered wood (used in flooring systems and roof trusses) is sourced from Russia or Belarus and alternative sources are limited due to elevated demand worldwide.
INTEREST RATE RISES
On Tuesday 3rd May 2022, the Reserve Bank of Australia increased the nation's cash rate by 25 basis points to 0.35 per cent, marking the first rate rise in more than 11 years. If the banks pass on this hike in full, the average borrower with a $500,000 loan and 25 years remaining will see their repayments rise by $65 a month. How much will this affect renovator confidence? Watch this space.
THE WORD ON THE STREET
Closer to home in our Three Birds Reno School Community, students have been telling us for months that they too are seeing the impact of these 5 factors. Here’s what some of them have said:
“I’m in New Zealand where a lot of suppliers are only giving a quote that lasts 7 days, as the costs are increasing so rapidly they can’t guarantee a price for any longer than that.”
“We’ve been warned of an average 30% increase in pricing across the board from 18 months/2 years ago. ”
“The frame for my house in august last year vs March this year went up $30k just for the frame and the bearers and joists. I’m doing owner builder and have little heart attacks every time I look at the price.”
The skills they’ve learned in Reno School are going to be extra valuable for navigating their renovations going forward in this environment. A detailed budget (with added contingency), knowledge of different material types so that they can substitute due to price or availability and all the budget saving tips and tricks we share have never been more important.
OUR TOP TIPS FOR RENOVATING IN THE CURRENT ENVIRONMENT
So, things might be tough at the moment but should you keep planning for the future? We’re big believers in making hay while the sun shines and if the sun’s not shining on your renovation right now, let it beam down on your plans instead!
Even if you’re considering a more scaled-back renovation than you’ve previously dreamed of, it’s never too soon to plan.
But with planning, you’re not committing, financially or otherwise, to proceeding with the plans down the track. But, when the time comes and you DO decide to go ahead, you’ll be ready!
5 FRIENDLY REMINDERS
Be agile - pull on your PE Nation gear and prepare to bend and flex. Not literally, but you know what we mean! You might need to bend your budget, wishlist and timeline but you can do it! (put your back into it).
Be realistic - adjust your sums and make sure you’re comfortable with how much you can borrow and how much you can spend. Don’t forget your contingency budget… or be shy to pump it up a little higher to give yourself a bit more buffer - you’ll likely need it.
Be open and honest with your builder - share your concerns and understand what you CAN achieve for your budget. Great communication is key… and even more so in challenging times.
Be patient - patience is a virtue when renovating in this market. Supply chains are longer than ever before, so update the your project timeline accordingly
And remember, we’re on this wild ride with you! #yougotthis #wegotyou
We’d love to hear about your project in the comments below.
