Building material under pressure as supply woes continue

by | Nov 15, 2021

There is no doubt the building materials segment will continue to boom on a national scale, particularly as demand for new home builds and renovations continues. However, retailers, such as Dahlsens, are now under intense pressure to source materials in a booming industry.

Dahlsens Group of Companies Chief Executive Officer, Geoff Dahlsen.

Dahlsens Group of Companies Chief Executive Officer, Geoff Dahlsen agrees that the Australian building industry has thrived throughout the pandemic, primarily as a result of the Federal Government’s HomeBuilder scheme which has led to the number of new homes and dwellings sold in Australia out-stripping all forecasts.

Mr Dahlsen pointed out that unfortunately and extremely frustratingly for all, the building boom has resulted in industry-wide product shortages; with the challenges faced by home builders to deliver their projects on time and to budget growing by the day. 

While the on-going supply challenges and sheer volume of work has created enormous pressure, there have been some silver linings and several lessons learnt.

“In unprecedented times, our strong supplier relationships have been well and truly put to the test, like in no other time in recent history. At Dahlsens, we have long worked with our suppliers in true partnership supporting the success of both parties. Loyalties earned over decades of partnerships with a tight group of suppliers across a national network have ensured ongoing priority supply and the securing of significant additional volumes across all categories,” Mr Dahlsen said.

In saying this, supply shortages are expected to remain for some time, according to Mr Dahlsen, with timber framing, LVL and insulation currently of key concern. 

“What we are not sure of is for how much longer demand will outstrip supply. For now, we continue to prepare for supply challenges that will last for at least the next six months,” he said

Just some of Dahlsens’ strategies when adapting to these supply issues include the use of alternative materials and where necessary, Dahlsens has worked closely with its customers to develop alternative building material solutions to enable projects to continue.

“Many suppliers chose to delay price increases during the lockdowns in 2020 and the ensuing economic recession. As Australia emerged from recession and the housing market remained buoyant, supplier prices increased. Price notifications from our suppliers have come thick and fast over the past 12 months, at a rate of which we have never seen before and we have found it challenging to keep up with,” he said.

Throughout this time, maintaining a high level of communication with its customers was a high priority for Dahlsens throughout the pandemic, with Mr Dahlsen saying its customers are fair and reasonable business owners and were grateful for the support and communication Dahlsens provided. 

“We decided early on in this pandemic to be upfront, transparent and honest with our customers, providing as much information as we could about our position in order to help our customers plan and adapt to the conditions. We will continue to do this,” he said.

When offering his advice on how builders can protect themselves from the supply demand imbalance and price increases throughout the coming months, Mr Dahlsen offered the following tips.

“Firstly, accept and plan for delays and longer lead-times. Secondly, plan for price increases, as well as the risk of multiple price increases which may occur during lengthy construction lead-times. Thirdly, provide as much advance notice as possible of building supply needs to suppliers,” he said.

Despite all of the current challenges, innovation has continued to remain prevalent throughout the building supply sector, with Mr Dahlsen saying its new Speedtruss and the Fastfix Internal Wall Screw by Pryda is a game-changing product for the Dahlsens truss and frame teams.

“This product delivers a new approach to roof truss design and installation with the pre-fab Speedtruss functioning like an assembly kit with pre-installed screws. The need for temporary and additional fixings such as triple grips is removed and our customers are loving the way it speeds up the job. We look forward to sharing this with more customers in the new year,” he said.

When reflecting on the last two years, Mr Dahlsen made mention of his team, saying he has never been prouder of the effort, expertise and work ethic his team brought to work each day, even in these trying circumstances. 

“The leadership and courage of our team throughout this pandemic has been remarkable and recognised by all. Team members have worked in the face of COVID all the while supporting each other, getting on with the job at hand to service our customers’ needs in challenging supply conditions,” Mr Dahlsen said.

“Like many industries, with the increasing demand has come the need to increase the workforce who services it and during this time recruitment has been a challenge. In saying this we have been pleased to see the way our robust and expert team has adapted, filled gaps, stepped into alternative duties and shown flexibility in order to continually carry us forward.”

HIA warns on-going building boom will further strain supplies 

HIA (Housing Industry Association) Senior Economist, Nicholas Ward has shared his opinion that the extension of the Federal Government’s Homebuilder grant combined with an on-going need for consumers to spend un-used overseas travel funds on renovations rather than holidays, as well as low interest rates, has fueled a boom in renovation and new home building. 

The unprecedented demand for building materials is set to continue particularly as demand for housing remains strong, with more of a focus, so far, on detached housing, according to Mr Ward.

“Since a lot of consumers, particularly in Melbourne and Sydney, have been forced to stay at home, they now look at their home environments a bit more seriously. All of these factors have combined to drive a boom in demand for housing which is great news for the building material sector.”

At the same time, Mr Ward pointed out that the significant limitations on the availability of skilled labour and building materials continue to make it difficult for the industry to meet high demand.

“Timber supply is, of course, a critical issue currently, while there are also other materials that are problematic. One indicator that we are following when it comes to supply concerns is container prices. Prices have increased substantially throughout the pandemic which means that the ability to ship things during this time has not necessarily met the demand to have things shipped. In Australia’s case this also prevents imported materials from coming in,” Mr Ward said.

For now, Mr Ward believes one of the only options builders and suppliers have when dealing with on-going labour and building material shortages is to push out the lead times for building starts.

“Normally a builder would sign a contract and this would translate into a start in about six months from that point. However, these start times have now pushed out to 12 months. Once a builder gets started a normal build time is about eight months but this build time is closer to 12 months. In fact, the most recent rounds of lockdowns may have pushed this figure out a bit as well.” 

“The principle guide that we focus on is housing starts. In the financial year just finished in June 2021 the ABS recorded 139,000 detached dwelling starts and at this stage we are expecting another 125,000 in the financial year that will finish in June 2022. This shows that both are strong years in building. This is particularly evident when you look by way of comparison in the 10 years before the financial year finishing in June 2021, the average is 108,000 starts per year,” Mr Ward said.

While housing starts may start to weaken from June next year, overall, the industry will be busy for some time yet, he said.

“Renovations are booming at the moment and we expect this to continue for some time. This is particularly the case as COVID has seen consumers look at their home environment differently. They have more disposable income available, with lockdowns, and this has prompted a boom in renovations. While boom levels may not be maintained absolutely – we still think that there will be quite a strong demand for renovations for some time to come, and therefore quite a strong demand for labour and materials for some time to come,” he said.

Historically domestic production of timber is relatively stable, according to Mr Ward, and typically it is imports that provide more adjustment when demand is strong. 

“The problem at the moment is demand for timber is strong all around the world because other countries are going through the same thing that Australians are going through. So, renovations and new home builds are also booming in the US for example,” he said.

“Because of this dynamic this also prevents imports from adjusting. But the good news is, timber prices have fallen by as much as 50 per cent in parts of North America in recent months. This is evidence that supply is better meeting demand and eventually that supply will find its way to Australia. That then brings us back to the container issues.”

“There are very early signs that the container shortage may have peaked. The price peaked in September and has since come off a little bit – not by much – but it has come off. Instead of increasing it has come down slightly. This is an early indication that some of those problems might be peaking. We are expecting some resolution to these issues next year,” Mr Ward said.

While vaccines pass the 80 per cent double dose target nationally, Australians remain hopeful that lockdowns are ending. However, it will take some time for ports to pick up after the pandemic, as they continue to recover from significant blockages.