[+] Timber Shortage Brings Building Boom Unstuck

It is no wonder Australia’s construction industry could not see the forest for the trees. Only a year ago, it was unimaginable a massive surge in building demand would lead it to the brink of crisis, with a critical shortage of building materials causing crippling delays and cost blow-outs. Timber supplies were the first to be hit as Australia and other nations around the world, grappling with the impact of the pandemic, pushed the button on economic stimulus programs focused on housing construction. With a record 2021 workbook of 143,700 detached homes commencing construction across the country, HomeBuilder had the desired effect but also created a “diabolical” and “debilitating” increase—as industry experts have described it—in demand for timber that has far outstripped its supply. The beleaguered sector is now rife with whispers of rising numbers of developers and builders handing back hundreds of contracts and refunding deposits due to skyrocketing residential construction costs stemming from the supply constraints. And it appears things are going to get worse before they get better. “If it smells like timber and looks like timber, we’re buying it,” said Redland Bay Roof Trusses co-owner Drew Parker, whose family business has been supplying south-east Queensland builders for more than 30 years. ▲ Australian builders continue to struggle sourcing wood in the building boom, fuelled largely by the federal government’s HomeBuilder program. “Every day we’re having problems sourcing timber,” Parker said. “We’re basically constantly running at a deficit in terms of forward planning of materials, looking at higher cost substitutes and buying anything and everything from anyone. “I’ve never seen anything like it—never seen 15, 25 and 30 per cent price increases, let alone every quarter. “Never seen the lead times of orders that we’ve got right now. It’s gone from two weeks to—well, if you want something this year you’ve got no chance. “At the start of the year, we saw hints of what was coming and by March it was insane. In the space of six weeks everyone was booked up for the rest of the year. The needle on the gauge effectively went from empty to full.” At the beginning of last year, Australia’s housing market was at a low ebb with new dwelling approvals and commencements at a seven-year low. Then, with Covid-19 spreading to our shores, it was feared a major economic slump would hit the severely subdued building sector hard. “Everybody thought the industry was going to go the complete opposite way it did,” Housing Industry Association economist Angela Lillicrap. “It was a bit unexpected.” Lillicrap said the explosion in detached housing approvals fuelled by the HomeBuilder stimulus was unprecedented— surpassing the peak of the previous boom in 2018 by more than 20 per cent. “Compared to what we expected at the start of Covid, it’s a good situation to be in,” she said. “And as much as no one wants these issues (building material shortages, construction delays and soaring costs) they are much better to have than no work.” Lillicrap said the timber supply issues would be resolved as the number of housing approvals and commencements continue to fall and overseas timber demand and prices cool off, as is already happening. “We are at the peak or just past the peak and the problems should start to naturally ease over the next six to 12 months,” she said. ▲ There has been a reduction in timber imported from overseas due to demand and disruption to shipping. According to Drew Parker, everybody also has finally “got the picture” that the hole the industry can push supply through is only so big and backed up—and even though it is a “scheduling and cashflow nightmare, not to mention the price rises” it will eventually end. Project management specialist Claire O’Rourke from Bluebird Property said the company was currently working across 10 active construction sites and witnessing the impact of the timber shortage first-hand. “We first saw the issue mid last year when the bushfires hit tens of thousands of hectares of our domestic reserves,” she said. “Now with the HomeBuilder boom the situation has become even worse. “In the last six months we’ve seen a 20 to 30 per cent increase in the price of timber and lead times are stretching up to 16 weeks.” O’Rourke said the situation was frustrating and it was a matter of factoring the issues into its programs and cost plans as well as working with the builders to ensure they are able to place their orders as soon as possible. “The spike in demand won’t continue forever and we’re already seeing a large dip in building approvals so all the indications are that things will normalise next year,” she said. ▲ With materials and labour shortages, demand is expected to extend the HomeBuilder pipeline well into the 2023 financial year. Image: Getty Images Meanwhile, partially completed residential construction sites are becoming commonplace in housing estates across Australia due to the timber supply challenges. “We’ve started to see it on our own estates,” Gold Coast-based KDL Property Group managing director Kent Leicester said. “Sites that we settled in January, it&#x27;s now seven or eight months later and builders haven’t been able to start homes. Slabs are on the ground but they can’t get the frames up yet. “A lot of them have looked at other options and shifted to steel to make up timeframe shortfalls but, in the meantime, steel also has been hit by supply issues and hefty price hikes. “It’s certainly the worst I’ve seen it. HomeBuilder and the low cost of borrowing have really pumped up the market and we’re not seeing it easing at the moment. “More price increases are expected next quarter.” Residential high-rise builders are reporting the timber shortage also has become problematic for them, compounding their bigger woes surrounding steel supply. One Gold Coast-based mid-tier building company told The Urban Developer that delivery lead times for timber doors had blown out from a few days to eight weeks. Scott Brumfield, construction manager for Melbourne-based firm Hansen Yuncken, said the country was facing its worst material shortage in over 40 years. “Delays in sourcing materials, from international suppliers especially, is not a new issue for Australia, given its geographical location, but one exacerbated by Covid-19 among other factors and we now have a crisis on our hands,” he said. The coming months will be do or die for many smaller builders, who have bitten off more than they can chew with fixed-price contracts amid the HomeBuilder stimulus frenzy. “The pressure is still building and we are bracing for more builders going to the wall and collapsing later this year,” Master Builders Queensland deputy chief executive Paul Bidwell said. “Timber is by far and away the biggest issue. Timber frames, laminated beams and roof trusses—you just can’t get them, and prices are up 70 per cent since last November and still rising. “No one expected this. The timeframes are quite extraordinary. Back in June builders were being told not to expect delivery of timber trusses until 2022. “We’ve heard of one big project home builder who signed a contract at the beginning of the year for completion in November and they will not get trusses until July next year and completion won’t be until December next year. “It’s absolutely diabolical and there’s no suggestion it is going to fix any time soon—at least not until well into next year.” ▲ The coming months will be do or die for many smaller builders, who have bitten off more than they can chew with fixed-price contracts. Not surprisingly, the price of lumber—accelerated by increased global demand and supply shortages— has reached historic levels this year, peaking at US$1600 per 1000 board feet, a massive 300 per cent rise on the previous year. Traditionally, Australia imports about 20 per cent of its house frame timber but that has sunk to around 14 per cent due to the pandemic’s disruption of shipping and the spike in construction activity in the US and Europe that has sucked up a lot of global timber supply. Australian Forest Products Association deputy chief executive Victor Violante said Australia’s timber mills were working at full capacity 24-7 and getting timber out but were “stretched to the limit”. “We expect the HomeBuilder spike will work its way through the system over the next six to 12 months but it’s a bit of a wake up call,” he said. “The last 12 months has highlighted Australia’s vulnerability due to its diminished self-sufficiency in timber production. “At the moment, we have dropped the ball, out timber plantation supply has been going backwards and we are not going to meet future demand. “We will get out of this timber shortage but long-term we are not out of the woods yet. &quot;Whenever we see these spikes (in demand) we will be back into shortage territory and that will occur more frequently if we don’t plan for the future.” You are currently experiencing The Urban Developer Plus (TUD+), our premium membership for property professionals. Click here to learn more.

[+] Timber Shortage Brings Building Boom Unstuck

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