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{{propApi.successMessage}} {{region}} Change locationFixed price contracts under pressure from global events
Fixed price contracts under pressure from global events
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HIA Managing Director Jocelyn Martin said while global events such as the conflict in Iran, are contributing to cost volatility, the impact on builders is being shaped by the way the industry operates.
“Residential building is very different to many other sectors. Builders typically enter into fixed price contracts well before construction begins, often many months in advance.
“That gives consumers price certainty, which is a good thing, but it also means builders carry a level of risk that other industries are not exposed to in the same way,” she said.
“Recent increases in fuel, freight and some material costs are flowing through supply chains, adding to the broader cost environment builders are managing.
“For most businesses, rising costs can be passed on relatively quickly. In residential construction, that’s simply not how it works,” Ms Martin said.
“Once a contract is signed, the price is locked in. Builders then have to navigate whatever changes occur between signing that contract and completing the home.
“The industry has always managed cycles, that’s nothing new, but when cost movements are sudden or unpredictable, it reinforces just how exposed fixed price contracting can be.
“But there are practical steps governments can take to help ease pressure on builders without undermining consumer protections or impacting the budget.
“Improving the speed and consistency of planning approvals is one of the most immediate ways to reduce risk,” she said.
“The longer the gap between contract signing and construction, the greater the exposure to cost changes. Faster approvals mean builders can get on site sooner and reduce that uncertainty.”
She said investment in enabling infrastructure to unlock shovel-ready land, along with more efficient supply chains, would also help stabilise costs across the pipeline.
“Getting more land to market and ensuring it is properly serviced helps keep projects moving and reduces delays that can compound cost pressures,” Ms Martin said.
“Equally, policies that support workforce availability, whether through apprenticeships, training or targeted skilled migration, help ensure projects are delivered on time and on budget.
“The more stable and predictable the pipeline, whether that’s costs, approvals or supply, the better outcomes we’ll see for both builders and home buyers,” concluded Ms Martin.
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