Why 2024 Is The Time to Renovate

Recent years have been a bit of a rollercoaster for the building industry, and by extension, the renovation industry.

The post-COVID HomeBuilder incentives for both new homes and major renovations led to a boom, but this was later curtailed by a combination of higher interest rates, building material cost increases, supply chain issues, and labour shortages.

In 2024, there are signs that some of these key factors affecting the industry are stabilising and, as others aren’t likely to improve in the foreseeable future, this year is likely to be the best window of time to renovate before a potentially more challenging 2025.

Why Stability is Important

Our economic environment is made up of a number of factors. In isolation, each element might change, but when several are in flux, there is volatility that can knock consumer confidence and cause uncertainty for businesses.

Many domestic construction companies in Australia like to give their clients peace of mind by providing a fixed-price contract.

This ensures homeowners are protected against nasty surprises if building materials or labour costs rise sharply between the time the contract is signed and the time the construction work finishes.

In recent years, some builders providing fixed-price contracts took a hit because, if they hadn’t planned ahead sufficiently, they had to absorb rises in their labour and material costs.

On the consumer side, interest rate rises caused the cost of any building work to go up because, in most cases, people fund their renovations with borrowed money, whether that’s a loan, redrawing on their mortgage, or remortgaging their home.

So, a return to stable conditions gives assurance to both businesses and homeowners that they can go ahead with their renovation project with some certainty about the costs.

The good news is that in 2024, many of the key factors are becoming predictable.

Interest Rates in 2024

Inflation in Australia rose alarmingly in the past few years for the first time in decades, but in recent months there are signs it is slowing.

The main weapon used by the Reserve Bank of Australia (RBA) to curb inflation is to increase interest rates, which has the effect of reducing consumer spending, which in turn puts downward pressure on prices.

For the first time in quite a while, Australian interest rates have been kept on hold for successive months, the last rise happening in November 2023.

While the jury is out on whether we will see interest rates fall in 2024, to some commentators the period before interest rates go down would be the time to start a building project.

That’s because when interest rates drop, consumer demand for construction typically spikes.

And, as we’ll discuss in more detail later, the labour market for the key trades involved in building isn’t ‘elastic’ – there is a time lag between training enough students to fill the increased demand for work and meeting that demand.

So, if you wait until interest rates fall, you might find it harder to find a builder who doesn’t have a backlog of work and a shortage of experienced and reliable tradesmen to do that work.

More Resilient Supply Chains

Due to COVID and then the Russian invasion of Ukraine, global supply chains slowed in 2021 until 2023 causing shortages of many goods including building materials.

The good news is that this situation has eased considerably and whilst we aren’t back to a pre-COVID ‘normal’ state of affairs, things like container costs are coming down sharply.

Additionally, there is recognition from governments and logistics experts that supply chains need to change to be able to better cope with future ‘shocks’, be they wars, weather events, or another pandemic.

This has led to considerable changes to ensure we can rely on more resilient supply chains, combined with a greater capacity to produce and source essential products closer to home.

Normalisation of Building Costs

As well as being affected by the supply chain issues, building material costs increased due to weather events, labour shortages (for producing the materials), increased demand during the post-COVID building boom, and a weaker Aussie dollar.

Some of these issues have eased, like the aforementioned supply chain delays. Other factors have dampened demand.

CoreLogic – one of Australia’s leading providers of property data and analytics – suggests that whilst building costs remain high, they continued to stabilise in the first quarter of 2024, and are expected to remain within the usually expected rises in the coming year.

This was because housing approvals went down in 2023 and early 2024 taking pressure off the demand for building materials, leading CoreLogic Economist Kaytlin Ezzy to note as recently as last week that “the strong fluctuations seen in building material costs over the past few years have levelled out and are now within normal margins.”

Labour Shortages

Australia continues to feel the effect of labour shortages, experienced since COVID left us without a ready supply of talented overseas workers who were more than happy to work in Australia.

This hit the building industry as well as nearly every other type of business in the country.

The situation is further compounded by greater competition for skilled construction workers due to an increase in infrastructure projects as well as the current Government’s increase in new housing targets – these projects all draw on the same set of workers.

Infrastructure Australia has suggested that there needs to be short-term and longer-term solutions put in place by the Government.

In the short-term, the quickest solution will be to change immigration settings to attract foreign workers.

The longer-term solutions involve better planning, training and retainment of workers in the construction industry.

Infrastructure Australia thinks the situation is likely to get worse before it gets better, and the consequence for homeowners is that they may want to consider bringing forward their renovation plans before the problem causes even further delays as housing approvals increase.

Housing Prices

The housing market remains strong, and prices have been steadily increasing despite the rises in inflation and interest rates of the past few years.

Whilst this is, once again, making life difficult for first-home buyers, for anyone who does have a foot in the market, the increased value of their home means that:

1. They have increased equity to draw on for large capital projects like renovations.
2. As house prices continue to rise, the value of their home is more likely to increase well above the cost of their renovation, certainly in the long term, and especially if they expand the home to include another bedroom or two.

In short, homeowners once again can feel confident that any major renovation is affordable and can be taken on with less risk.

Looking to Renovate? Plan Ahead

When combined, these factors suggest that 2024 would be the optimal time to start a major renovation project.

You might need to expand your home for a number of reasons – a growing family, or to look after an elderly parent – but however urgent or distant the need, it will pay to plan ahead.

The lead time for renovations is affected by how long it takes you to find the designer (or architect) and builder you are comfortable with, then the time you’ll need to get your Development Application approved, unless you are able to use a Complying Development.

It can be months between when you start to investigate a renovation and when you see the first construction activity.

Better Options

Many people think that the first step to a major renovation is to find an architect. However, this isn’t your only option, and may even be more expensive and involve longer lead times.

Many of the established renovation companies like Addbuild offer a ‘concept-to-completion‘ service that includes designing, getting approvals and constructing your renovation.

The advantage of this approach is that you work with a company with years of experience in delivering the best design to solve any renovation challenge, and they know how to draw up plans that have the best chance of quick approval by your local council.

Often architectural plans differ from the type of plans tradespeople require for the construction stage, whereas when a design and construct company creates them, the plans our tradespeople use are the same as the contract plans and those submitted for building approval.

Get In Touch – We’d Love to Help

Addbuild has been expanding Sydney homes since 1980, completing more than 2,000 additions and extensions in that time.

As you can tell from the advice we provide in our blog, consumer guide and masterclass, we are passionate about helping Sydney homeowners realise their dream of creating their forever home.

If you are thinking about expanding your home with a major renovation, we’d love to hear from you and share our experience with you. Call our office on (02) 8765 1555 or send us a message using our contact form if outside of office hours.