Australia is experiencing a period of inflation. While the official rate has been 2.5 per cent, the RBA reports inflation rates now sit around 3.8 per cent, vastly due to the pandemic response last year. Childcare and pre-school packages, medical and hospital services, and the recovering cost of fuel are some of the major drivers contributing to the rise in the last two quarters.
This rise means any building insurance valuations completed before this year no longer reflect the official inflation rate and could result in body corporates facing insufficient coverage on their buildings.
According to the Australian Bureau of Statistics (ABS), commercial construction costs have increased more than 1.1% in the March quarter. This equates to an annual rate of 4.4%, which is growing faster than inflation. Again, COVID-19 disruptions are primarily to blame. Global supply chain issues and state and international border closures are driving up material and pricing costs dramatically.
Building Cost Increases
- Laminated Beams – increased by 15 per cent
- Timber framing – increased by 15 per cent
- Concrete – increased by $10/cubic meter (this is expected to increase by 3 per cent again in Q4 2021)
- Structural steel – increased by 10 per cent
- Roofing/Purlins – increased by 10 per cent
- Bar and Mesh products – continual rise from Q1 resulting in a cumulative rise of 36.5 per cent this year to date.
With the worrying evidence that building costs are overtaking inflation with little sign of slowing down this year, building cost increases will likely reach 30 per cent. It is forecast to reduce next year, providing the government’s pandemic fiscal response eases. However, if this boom continues, construction times will dramatically increase, resulting in higher cost escalation fees of 50 to 100 per cent.
These figures place bodies corporate at risk of being underinsured. By law, bodies corporate must have their buildings valued for the full replacement cost. Meaning, any valuation completed before this year results in a policy that will not cover full replacement with inflation considered. The shortfall of this will be significant and costly to bodies corporate, should building repairs or rebuilds be required.
QBM is currently using a rate of 3.5 per cent for cost increases. This figure will continually track and respond to the market in the next quarter and could go up 10 per cent or more in response.
If you’re looking for building insurance valuations then contact a team that has the latest insights into building costs and variations. Our team has completed thousands of building inspections, forecasted Sinking Funds and prepared insurance valuation reports for buidings right across Australia.
Our team of trained professional are ready to help, so contact us today!