Why Sydneysiders are avoiding major home renovations

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Homeowners have scaled back renovations as costs soar and banks tighten their belts, ending the home improvement boom of the past two years.

The value of home alterations and additions decreased by 7.4 per cent in March, ABS figures show, to $942 million when seasonally adjusted.

In the same month two years ago, it was $1072.5 million.

Project manager Sarah Wood, pictured with builder Ian Broughton in Annandale, said homeowners had moved away from major renovations.Credit: Brook Mitchell

Sarah Wood, the director of The Middle Woman building company in Sydney’s inner west, said while the overall number of renovation projects had remained high, clients were moving away from building-approved development applications.

“People are more hesitant to do major renovations,” she said

“Getting money is harder and there’s a higher risk of overcapitalising on property. A quoted price can easily increase with unexpected site conditions and with clients wanting changes to designs during construction.”

Since May last year, the Reserve Bank has raised the official cash rate from a record low of 0.1 per cent to 3.85 per cent, while the value of new loans has decreased by 26.3 per cent between March 2022 and 2023.

Prices of building materials have risen 11.4 per cent in the 12 months to March, driven by increases in plasterboard, aluminium, glass and copper.

Construction prices also rose 9.4 per cent over the same period, driven by skill shortages.

As of February, 24.2 per cent of construction businesses reported vacancies with 31,200 jobs unfilled.

Master Builders Association NSW executive director Brian Seidler said builders were just as wary of interest rate rises and spiralling costs as homeowners.

“Builders are now getting out of the clutches of lump sum contracts. They priced buildings during the pandemic, then prices went through the roof, [but] they legally were locked into performing and realising a contract of a certain level, even though it might have been significant losses for them,” he said.

“So [builders] pull up stumps and leave.”

Home Industry Association senior economist Thomas Devitt said a number of existing new home projects had been cancelled after home buyers were refused finance.

“It would be unsurprising to hear that it’s also happening in the renovation sector as well,” he said.

But he stressed the renovation market remained strong, despite this month’s drop.

“In terms of the underlying strength of the renovation market, it’s looking likely that it will sustain itself,” he said.

“The new home market is facing increasing constraints in terms of interest rates going up, with construction costs and timelines blowing out. Renovations are increasingly appealing because they can often be done faster or more affordably.”

While material and skills shortages were a concern, Devitt said issues were starting to ease as international workers arrive and supply chains recover.

The federal HomeBuilder grant, announced during the pandemic, created a boom in the construction industry by providing homeowners with up to $25,000 for new home builds or renovations.

That’s all come to an end, with the Housing Industry Association’s economic and industry outlook report, released last week, finding new home construction has slowed, with building approvals in the first quarter of 2023 at their lowest level since 2012.

Lending for the purchase or construction of a new home has also fallen to its lowest level since 2008, while several building companies – including Porter Davis Homes, Lloyd Group and PBS Building – have gone into liquidation this year.

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