It is October 2022. If you're thinking of renovating your home and upgrading, this is a must-read as we talk all things construction and planning.
Stefan Angelini
Good day! Here with Stefan Angelini and Trit, Tristan Angelini, the shorter, uglier brother. What a great way to start, huh?
Tristan Angelini
Thank you. Lot more hair than you, though.
Stefan Angelini
You do. Mine's going away.
Tristan Angelini
But you're taller also.
Stefan Angelini
A tablet a day keeps the hair growing.
Tristan Angelini
Does it?
Stefan Angelini
Let's not talk about that. So why I wanted to chat with you because you're a builder, right? Got no idea about construction, so lucky.
Tristan Angelini
I've seen my life, I've seen that over the years.
Stefan Angelini
But I see a lot of people come to me when they're upgrading their home and the reason I want to sit down with you is because what people expect to pay for things like a small renovation, big renovation, or even to do a knockdown rebuild is way off. And I'll give you some examples. Like a client in Brighton that thought they were going to renovate their home for 300 grand blew out to 450. Client thought they were going to do a knock down and rebuild for $400,000. And now, factoring in a $750,000 budget, a big renovation in places like the Armidales and the Brightons was originally expected to be 800 grand. It's actually 1 to $1.5 million for a big reno. And I guess no one realized, one, what construction actually costs, two, how to go through the process, and three, I guess, what they should do and why costs a blowout. So I guess talking to you, there's been some reasons why there's issues with construction costs, one of them being materials and the cost of materials. So what's happened with materials?
Tristan Angelini
Well, since the pandemic well, materials have been obviously slightly increasing year on year. Before the pandemic, it was just whatever it was, 3%, stuff like that. Then all of a sudden, the pandemic hit, supply chains sort of stopped and all of a sudden these prices just started hiking, like going crazy through the roof. For instance, we're paying for timber, we're paying a dollar 80 a meter, linear meter for just MGP 10 normal timber. And all of a sudden it was dollar 80, dollar 83, dollar 87. We were always in the office going, oh, well, it is what it is. You didn't have to really provisional, so you didn't have to worry about it. It was always going to be a dollar 87 or 82 that wouldn't kill you. All of a sudden started going up to $2, $2.30, and then we're like, oh, let's quickly, let's buy it, let's get timber. And then all of a sudden it's like, yeah, well, we haven't got stock, so even it was $2.30, we didn't have stock and that just skyrocketed $4, $5, $7.
Stefan Angelini
What?
Tristan Angelini
Yeah, we're paying $7.70 a meter at one stage, it sort of started to.
Stefan Angelini
Four times from where it was.
Tristan Angelini
Yeah, that was the first thing that started to go out. It really started to skyrocket and then it sort of started trickling down to plaster and everything, concrete prices, steel prices, going crazy. So it's been hard as a builder to try and navigate through the pandemic and the mess because not only were the prices were hiking, supplies wouldn't give you a fixed price. And then by the time that you actually call up to build the call up for that particular product, it's already gone up 30%. So a lot of builders have been hurt throughout the world since the pandemic as well. So you would have seen in the news and stuff a lot of builders going bust.
Stefan Angelini
Yeah. Timelines pushed out timelines.
Tristan Angelini
Yeah. So and now what we're facing at the moment is probably material is, you know, interest rates have hiked, materials are starting to decrease a little bit. Sorry. Even itself out. Starting to balance. It's not increasing month on month. We're getting letters from everybody. Month on month, price increase, 7%, 8%, 12%. So now that's starting to settle. But labor, we've just got a shortage of labor everywhere.
Stefan Angelini
Was it so I know obviously the pandemic Victoria shutdown, a lot of Australia shut down. No overseas people coming in. Is it the overseas migrants that's lacked? Is it Australian people don't want to be in construction anymore? Or is it too much work?
Tristan Angelini
Well, there's definitely a lot of bureaucracy around building. It's not like it was when our dad and grandfather was building, nuna was building. You can't just literally build anymore. There's so much red tape that you need to go through insurances, warranty, even with the permitting and stuff like that. And to get back to your question about why has prices gone up so much and why people sort of missing that mark, nobody really thought or knew that this pandemic was really going to slow the global supply chain and we would labor shortage. I mean, who would have thought that that was going to be we sort of seen it in a way like you could foresee that it was going to happen. It was going to happen. Because the Australian construction industry is very specialized. We have a code that we have to follow. You can't just be a student and go get carpenters in from overseas and you want to be a carpenter for the school holidays. You can't do that. You have to go through your training and all that sort of stuff. But also you can't just go and get carpenters from overseas because they have to know our code. And the way that we build things, the way that we build here in Australia is different they do in the UK, different, they do in India different, they do in Dubai. So that's specifically in our residential market, we have different methods of construction. So you have to train people here and it's a massive shortage. So labor rates have gone through the roof.
Stefan Angelini
So labor's costing more, materials are costing more.
Tristan Angelini
Yeah.
Stefan Angelini
If you look at 12 months, you see where, where we are now, we're in October 2022. If new build starts are starting to slow down a little bit. Just because people aren't doing as much because of increasing interest rates and a slowing economy, do you see the cost of materials and supply decreasing, which might push down construction costs? The reason I ask is because a lot of people now are thinking about renovating or building their home and they're just like, what's the point? It's going to be so expensive. I don't have the money. Or do you think it's going to be at that level going forward?
Tristan Angelini
Going forward, honestly, I don't think that the prices are really going to come down much inflation is here. We are seeing inflationary measures every single year until that sort of starts to correct itself. But labor rate, labor rate is going up. Getting people to start to build things at the moment, even subcontractors, trying to find subcontractors, it's difficult to get the labor. So even though supply, maybe materials might stabilize at the moment, and we'll start slowly getting that, start getting the amount to stable that. The labor rate, we've got a shortage of labor. But if people, I would advise people, if they were going to build, there's no better time than sort of ASAP, because if they're going to be waiting, it's going to go up even further. And especially now, which a lot of people don't, probably a lot of people general public don't realize that as of the new national construction code is just come out. So as of May next year, I think it is, we're going to be another 10% more in construction costs just from that code change. So we're going to 7-star energy rating. So if you think things are expensive now, wait till you have to put thermally broken windows into your house. Obviously, the world's moving towards this greener living, sort of low emissions that's going to cost more with disability access is going to be mandatory in every home. So there's changes with that. Now, look, it's probably better for the industry. It's going to be good for the industry because it sort of weans out a lot of cowboys, but it also increases costs. So it's one of those things. We've got a housing shortage and the government's enforcing it to ultimately go higher in price.
Stefan Angelini
Yeah, which is going to happen, I guess, looking at renovating and applying that cost of construction into real life. People who are thinking of making changes to their homes, not developers, but the everyday person who might buy a house could be an older house who want to do renovation, say small renovation, do some bathrooms. Could you give an indication on, let's say they want to renovate a bathroom, they want to strip out the shower, redo the basins, do all the tiling. What's someone paying for something like that nowadays?
Tristan Angelini
Well, you can get it done properly. Do you want to get it done properly?
Stefan Angelini
Properly.
Tristan Angelini
Yeah. If you're going to get it done properly, you're spending like, we don't do bathrooms. But, you know, I'd presume that anywhere between, say, minimum 30,000 to 60,000, I presume.
Stefan Angelini
So it's funny, people think that they can organize it themselves and get away with it for ten grand, but it doesn't happen because you're
Tristan Angelini
Probably and it's going to leak tiles.
Stefan Angelini
Tiles are costing more. I guess all the compliance around having a tiler that's got the certificate that can give you the get a waterproofing.
Tristan Angelini
Well, now, with the new construction code is that you have the product has to be code marked. So if a waterproofer comes in order to satisfy the building permit, you have to have a watermarked product. And that's one of the new changes that's coming in. So unless you're really up to date with all these code changes and you're going to go through, get a proper building permit and do it all properly, you need to know that. Now, a Tyler might come in that might not know it. You might engage, go, I'll get him made of mind to do it. He knows a Tyler, he comes in, he goes in, no problems, I'll do the waterproofing for you. And he doesn't use the right products. Maybe he uses a different primer. He mix and matches. It's not compliant anymore. So then you're not building towards today's code, but things just cost more money, like things just cost more now. Gone are the days where people are begging for jobs. Everybody's busy, everybody's just flat chat. We're calling up Tyler's. Hey, can you start this job? Booked out six months. So if we, us as builders are finding that there's a shortage of labor and materials, imagine if you didn't have the economies of scale to try and get someone in.
Stefan Angelini
Not, we spoke about building permits before. A lot of people don't know when to get one. When do you need one? When do you need a building permit? Do you always need one if you're going to do a renovation?
Tristan Angelini
Yes. Depends on what type of renovation though.
Stefan Angelini
Okay.
Tristan Angelini
Anything over
Stefan Angelini
$10,000.
Tristan Angelini
Anything. Yeah, $10,000 or $15,000,
Stefan Angelini
But anything structural.
Tristan Angelini
Structural? Yeah, Building permit.
Stefan Angelini
Yeah
Tristan Angelini
Of course.
Stefan Angelini
With structural.
Tristan Angelini
I don't know. I need to go back through the book. And then you need a building contract as well. I think it's anything over $10,000 as well. I've got to double check. Don't quote me on that.
Stefan Angelini
Yeah, okay. Well, something you might know a bit more about is when they start getting into bigger renovations in home. So let's say for example, someone buys a house in an area like a Middle Park, an Armidale, a Brighton, they want to renovate their home, they can't necessarily knock it down because there might be heritage overlays or they might just love the design of the home. When they start getting into that I guess aspect, keeping the structural foundation. There's a lot of issues underpinned in old houses.
Tristan Angelini
Well, first and foremost, if you're doing a renovation, especially inner city. Besides, if it's in the city or not, the reason why it's so a lot more expensive is there's so many hoops and bounds. Because when you go through to town planning, you have to go through town planning to do an extension. And then all your neighbors, everybody's a lawyer, they're all going to object. Then you got that speed hump. So you think you buy something in month, year one, you'll get your permit theoretically in 3 to 6 months. That never happens. You're looking at two years down the track, majority of cases. And then you go, oh, happy days, I got my town planning permit. Now what? Well, now you got to issue all your protection works notices. So that's what we're seeing at the moment is protection works notices are just crazy. Like, you know.
Stefan Angelini
Because people just pop up and say, no, don't agree, I want more information because you might impact on my house which is next door.
Tristan Angelini
Correct. And you can understand in a way, but the ability for your neighbor to, obviously if they've objected to your application, you have to still go back to them and serve them with the protection work to notice if you're building on the boundary or anything like that. So they can still make your life difficult.
Stefan Angelini
Yeah.
Tristan Angelini
So then by the time you get a building permit, they can drag out that process for another 12 months. If they want to. So and in that time, obviously, what has happened in the last two to three years costs just escalate.
Stefan Angelini
Yeah.
Tristan Angelini
So they're saying, we'll buy this house, we've got some money for renovations, there's so many hoops and bounds that we have to go through, navigate through this bureaucracy that we've got.
Stefan Angelini
So as a process, if you go someone's bought a house in a city, it might be on like 200, 300 sqm, buttered, really close to their neighbor, and it's a three bed house, they want to make it a four better, therefore they've got to go up is the process. Go to council because you need a planning permit
Tristan Angelini
Or for starters, it depends on how much time sorry, for starters, it depends on how much time you have in your hands. I would engage someone, an architect in the inner city that can actually project, page and navigate through that with you and help you do all those selections. And then get a builder in early because they can advise you spiritually, guide you on the construction costs and what you're sort of looking at. But even besides all the protection works and the timing aspect of it, have a 20% contingency when it comes down to doing a renovation because you just don't know what you're going to find.
Stefan Angelini
If it's on stumps because it's rotting underneath. Have you got an example of when you've started a renovation on like a decent house and you see issues underneath the house or what you couldn't account for?
Tristan Angelini
Always we've gotten into a house and we haven't allowed for any restumping or any underpinning of the structures of the foundationsand these things have been built 80 years ago. You've seen some of the, you know, some of the stuff that they built 80 years ago. There was no real code that they're following there. It's just, you know, slap some bricks up on you that will do. No one inspecting it
Stefan Angelini
Everyone thinks it's safe because they were bricks but.
Tristan Angelini
Yeah, they built them. They did build them. They brought them out of good materials. They just didn't build them properly. So a lot of the times and look, you know, obviously over time, things rock, you know. Yes, we had to underpin the whole side of the house because, you know, the foundations were cracking. We went as we kept digging, you know, we found out that foundations are only 300 mil deep and, you know, the structure of the house wouldn't have held up if we would have gone double story. So we had to underpin the whole boundary. That was a $30-40,000 exercise on top of a $400,000 renovation eight years ago.
Stefan Angelini
Eight years ago.
Tristan Angelini
So that was eight years ago. So 10% just like that can go pretty quickly, especially when you get looking underneath.
Stefan Angelini
So you got time. So it's going to take time. If you're doing a big reno, you're going to have to go through the processes of the bureaucracy with both council building permit, neighbors, and then you need to get it done and delivered and you don't know what you're going to face when you actually start doing it. So people need to have time on their hands.
Tristan Angelini
And you just need look, at the end of the day, whatever it is that you're expecting, like you're expecting. It's always good to just lay out the budget, what is our budget? What is our budget? And then add 20% onto that as a contingency.
Stefan Angelini
Yeah, that's it. You need to go into it with the budget. You can't just start we can expect it to keep going.
Tristan Angelini
Yeah. And you know what like, at the end of the day, you can go to one builder and go to another builder. You can go to all these different builders. At the end of the day, they're all going to be roughly the same. If one's cheaper at the end of it, he's going to be more expensive for the stuff. That's just how it is. They're in business for a reason. We're all in business. We're in business for a reason. Everyone should be at the same roughly around the same price. The most easiest thing to do is just to make sure that you trust that builder. They've got enough experience, they got enough drive. That's all you can sort of recommend in that aspect. Make sure they've got a
Stefan Angelini
I feel like when you engage in a builder, there's the three aspects to it, the triangle, time, quality and cost.
Tristan Angelini
Yeah, well, that's how we want it done.
Stefan Angelini
You want to done fast. You want good quality it's going to cost you more.
Tristan Angelini
Yeah.
Stefan Angelini
If you want it done quick, you don't want to pay much, you're not going to get the quality.
Tristan Angelini
Yeah. It's a unicorn, it's a mythological beast. If all those things are at ten out of ten, it's just not going to happen.
Stefan Angelini
That's right.
Tristan Angelini
And that's how we judge a lot of our subcontractors, a lot of our trades. If someone's doing a renovation, you want to engage a builder that's got their own carpenters on in house or they've got a lot of experience in renovation. A renovation builder is very, very different than a volume builder.
Stefan Angelini
Yeah.
Tristan Angelini
And they probably wouldn't even take on those sort of jobs. But you want to know that they've been around for a long enough that they've got the right insurances in place, warranty cover that they've got the right trade base as well.
Stefan Angelini
I've been seeing reno's pop up anywhere between $800,000 for nothing too fancy to 1.5 getting a decent level, but they can go well above that, depending on what you're doing. So then it goes into like, what's the internal is, like having an architect on board to make sure they're designed the right way. But I guess what I wanted to do there is to say if you're doing it, and it is in an inner city suburb, expect to spend money.
Tristan Angelini
Then again, it's your own house and you've got to live in there, you got to spend that time in the place. Now you have to sort of calculate the risk as well. Do you want to live in something and cut costs and you're happy with that? Just to cut the costs and you don't really care? Or do you want something ultimately you're going to be living in, you want to enjoy the space and pay that a little bit of extra money.
Stefan Angelini
Yeah.
Tristan Angelini
You're going to be in there for. If you're going to be long term or short term, it's not really a commercial decision, isn't it? It's more of an emotional decision. A lot of people do make at the end of the day with their house, so that's their own personal property.
Stefan Angelini
Yeah.
Tristan Angelini
With an investment, maybe it's a little bit different.
Stefan Angelini
Yeah. Investments there to make money, keep you happy
Tristan Angelini
To make money.
Stefan Angelini
But it sounds like so doing reno it almost sounds like a nightmare. Knock down rebuilds like, sounds like that's the easier way, the cheaper way, probably, but that would come with its own issues because you can't always get permits to do that.
Tristan Angelini
I look knockdown rebuilds. Yeah. I mean, there's a cost benefit in each way.
Stefan Angelini
Yeah.
Tristan Angelini
Knockdown rebuilds. The best thing is everything's going to be obviously new, sort of patching, and there's less risk of that cost overrun. It's a lot easier to get a sort of solid price. Some renovations come on budget, some blow up 50% over.
Stefan Angelini
Yeah.
Tristan Angelini
And sometimes you can't actually knock down and rebuild because there's heritage, there's overlays all that sort of stuff, especially in Melbourne or in the inner cities. Look, knockdown rebuild. It is good. Use new products, more compliant products.
Stefan Angelini
The base is the way you want it to be able to build on.
Tristan Angelini
You just start from code.
Stefan Angelini
The code.
Tristan Angelini
You're not patching things.
Stefan Angelini
Yeah. But I know with my wife and you know it, she loves the old school design, the old Victorians, the art decos, you drive past.
Tristan Angelini
I love them too, they look fantastic.
Stefan Angelini
Yeah. She goes, if we bought that, we're not knocking it down. But keep it the way it is.
Tristan Angelini
You probably have to, though, in a way, too, because it's probably heritage listed.
Stefan Angelini
Yeah. Those areas all with the same type of housing in there. They look beautiful.
Tristan Angelini
They look amazing.
Stefan Angelini
Yeah.
Tristan Angelini
They look fantastic. I love that look. I love the old school, that old Victorian style home. And then you walk through and it's really modern in the back. I like smaller homes, those small inner city homes. I don't like big houses, too much cleaning.
Stefan Angelini
We've been there, done that.
Tristan Angelini
Yeah. I don't clean it the best of times, if you ask my wife. But I want, I'd rather do other things and clean. Absolutely.
Stefan Angelini
Just in wrapping it up. As I said, I wanted to do this just to give people an indication as to what's involved in processes. If you're thinking about renovating, doing up your house, growing your house, because a lot of people improve their wealth through their home and they buy a house, they want to stay there for a long time. They just don't know the process. I guess one thing to keep in mind is the budget. As you said, there are always cost overruns of having cash available to do things because the bank won't always overextend what they're giving you. And a lot of times banks now, especially with finance, they're forcing builders to have fixed price contracts because of
Tristan Angelini
No such thing as a fixed price contract.
Stefan Angelini
Because there's variations and things like that. The bank won't pay for that.
Tristan Angelini
But how do you know? That's the thing. How do you know what's you're going to I understand the banks won't pay for it, but how do you know what's underneath that house? How do you know?
Stefan Angelini
So you need. But you need, as the owner, cash available, ready to go. Otherwise your project is held up.
Tristan Angelini
Ultimately, yeah, on a macro level. Just don't over. Just don't underestimate the amount of cash, physical cash that you have to put into that house. Make sure you got those reserves
Stefan Angelini
Yeah.
Tristan Angelini
And maybe not go for that if you haven't got the money to do it.
Stefan Angelini
Yeah, well, a lot of people now, especially because construction costs have increased so much, doing a big renovation is sometimes more expensive. So you're not going to get the value increase in your house. Let's say you've got a house for $1.5 million. You want to do a million dollar renovation. It might not mean you're going to sell it for $3 million. You might sell it for 2.2. So a lot of people are now thinking, well, should I do my reno or should I go and buy a place around the corner that's already sort of done or half done? But I guess when people are doing that, you've got to consider what's your what's your timing differences? Are you going to sell your house for the right amount that you want to get that next purchase? What's the stamp duty implication of getting into the new house? It's becoming a real conundrum out there where people don't know, should I renovate my home or should I just go and buy something up the road? That's already done.
Tristan Angelini
Yeah. You're right. But the market is also just changing rapidly. Speak to yourself about interest rates also. I mean. I don't know interest rates at the moment, repayments on those sort of houses, if it's your own personal place of residence, I mean, surely that's going to be playing putting downwards pressure on a lot of people.
Stefan Angelini
It's a killer. Yeah, it's a killer. Which is part of just in wrapping this up, interest rates and everything like that. Do put, I guess, a rope around how much you can spend and what your payment is going to be and how you have to change your lifestyle. So for anyone out there that's thinking about doing anything like this, what we're offering everyone is a free stress test spreadsheet. If you wanted to use it to increase your loan amount, but as well as increase interest rates to see what happens to your family budget and whether or not you can actually do it and leverage yourself that extra extent. If you want more information on it, reach out to [email protected] and we'll flick you the spreadsheet with no worries. So, mate, I want to wrap it up there. Thanks for talking construction.
Tristan Angelini
Look, I know I might sound..
Stefan Angelini
An all thing boring.
Tristan Angelini
I might sound pessimistic in a way, but sometimes you have to look after the downside and the upside and take care of itself.
Stefan Angelini
It's real, mate. It's better to be understand and be aware and go into it, versus being pessimist, being optimistic and then realizing it's.
Tristan Angelini
Always, should be right. Yeah, should be right. Absolutely.
Stefan Angelini
Awesome mate. Thanks for coming up.
Tristan Angelini
Too easy.
Stefan Angelini
Thanks.
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