- Rising construction costs mean homeowners could be underinsured
- Should a house be rebuilt, homeowners could be thousands out of pocket
- Steps to mitigate the issue include updating property insurance value
The dark side of the housing boom may be slowly revealing itself as concerns mount about the domino effect that materials and trade shortages will have on other key sectors.
“Industry can only absorb these skyrocketing prices and delays for so long – and unfortunately, we’re predicting this situation could explode in our faces around September and October.”
Paul Bidwell, Master Builders Queensland Deputy CEO
While it is not expected builders will go insolvent en masse, one issue that could surface is housing underinsurance.
“Property owners could be left hundreds of thousands out of pocket should an
unfortunate event have them calling their insurance provider,” said MCG Quantity Surveyors‘ Director Marty Sadlier.
If a homeowner had to rebuild following a fire or natural disaster, it is possible that given the sharp rise in construction costs over the past year, “… most [homeowners] will only discover they are woefully underinsured when it’s too late.”
“Our estimates indicate the cost of building an average Aussie home in capital cities
such as Sydney, Brisbane and Melbourne has risen by over 10 per cent in the past
six months. Given the median construction cost for homes in these cities is around
$485,000 that’s a price rise of over $48,500 in half a year.” said Mr Sadlier.
Insurance payouts from the NSW flooding earlier this year totalled billions.
Rising insurance premiums for Australians living above the Tropic of Capricorn have been so significant the Federal Government announced a $10 billion reinsurance pool.
That’s only a general snapshot, with some areas seeing costs go up considerably more.
So if you have your house insured for $400,000 and it now costs $450,000 to build due to the rise on costs, it’s possible homeowners will be significantly out of pocket when it comes time to claim.
Mr Sadlier said underinsurance was already rife across the population but current
conditions are making this far worse.
“The Insurance Council of Australia are quoted as saying that prior to the pandemic,
83 per cent of property investors were already underinsured. But given the recent hikes in materials and labour costs, I’d be surprised if we weren’t closer to 100 per cent of owners at risk.”
In order to mitigate some of the risks, Mr Sadlier said there were three things homeowners can do:
- Update property insurance value regularly, at least every year,
- Don’t rely on online insurance calculators, but go to certified professionals who can accurately represent the replacement values of a property, and
- Shop around for insurance options.