Let’s talk about the “Elephant in the room”
Without a doubt one of the biggest stresses facing aspiring homeowners in the Ecovillage - and almost everywhere else - is the “Elephant in the room” of soaring building costs. We can pretend it’s not there and skirt around the elephant, but the damage it is wreaking all around us is painfully obvious to see. It’s the subject of hard discussions we’re having almost daily and what we believed to be true just six months ago no longer applies - which leaves us frustrated, embarrassed and trying to second guess where it will all end. We may have our own thoughts and opinions but lets first see what other respected analysts are making of it all, before looking at what our response and strategy could be to at least reduce the impact of that destructive Elephant !
What is causing this unique set of circumstances ?
According to Michael Bleby (Australian Financial Review, May 2022) -“ The cost jump is the combined result of a spike in commodity prices, a large rise in timber prices ( which coincidentally makes up the largest component of most Ecovillage homes ) and smaller, but possibly longer lasting increases in items such as wages, concrete and other building materials. Global circumstances, including the Ukraine conflict and a major disruption to global shipping have played a big role. But domestic building and construction growth ( no small thanks to stimulus packages ) have also pushed prices high, and this will be further exacerbated by flood rebuilding and a looming wave of infrastructure projects.”
* items in brackets added by editor
Developer Nigel Satterley believes shortages of building materials and labour have pushed up the prices of residential construction by more than 15 percent over the past six months. And he is no doubt referring to the volume home market which can absorb price increases more readily than most of the smaller, boutique builders we have working on the Ecovillage.
According to Economic Researcher, Cameron Kusher, “ Over the March 2022 quarter , housing construction costs increased at the fastest pace in more than 40 years.” It was also the largest annual increase since that time. Annual increases in cost varied from as little as 2.8 % for installed gas and electrical appliances to a 42 % increase in steel products.
Annual Increase in costs for inputs into the housing construction industry , by input type, March 2022
And just in … according to a recent survey by Turner and Townsend, Perth is now the most expensive city in Australia in which to build, with costs having risen 14 percent in the last twelve months alone. It puts the average cost of building at $ 4109 per square metre which is an astronomical figure - although it is taking into account various building types and scales. Nevertheless, it does highlight just what we are grappling with in the industry and why any model that can offer some certainty is a good thing to pursue in these uncertain times!
So should we wait for prices to ‘normalise’ ?
Michael Bleby believes that we shouldn’t expect building costs to come down any time soon. He believes “ higher building costs will be a permanent part of Australian construction as materials and labour will not fall back from the high levels they have reached, but will grow more moderately from the second half of the year.”
Macromonitor Director, Nigel Hatcher, says “ After the current surge we don’t expect costs to just drop back to where they were previously. Rather costs will continue rising from the new, higher base, albeit at more normal rates of increase.”
Overall, it seems likely that the cost pressures will persist for some time yet, however, over recent quarters, housing commencements have slowed -although they remain historically elevated - which may help in easing some of these cost pressures. What is probably more pertinent is whether the costs will revert back to levels we saw a year ago and that will ultimately be determined by supply and demand. But if we look at the history of these prices , there have been very few periods in which these costs have fallen.
So the overall feeling amongst the experts ? “ Do it now “. Although it wont be possible for everyone, the advice seems to be not to wait, to get out and do it now, because it will only get more expensive! Now that is easier said than done, with many prospective homeowners already being financially stretched by cost of living increases and rising interest rates. So are there any answers to this perfect storm?
How can we help ‘tame’ the Elephant?
It seems the Elephant of runaway building costs may be around for a bit longer, so are there ways we can ‘tame’ the beast to reduce the damage ? This is a subject that is taking a lot of our attention at the moment and also a reason we have taken so long to release any new information on pricing of our homes. Taking the wildlife analogy further, we may seem like a duck in water, calm and slow on the surface , but below the waterline our paddles are frantically working.
So here are some of the strategies we are putting in place.
The Model : We have always aimed our offering as a middle ground (third way) of procuring a home in the Ecovillage. The first way was the pre -designed, pre-costed homes that were offered by the Ecovillage and some of the preferred builders. This still is a pathway, although pricing is now on application for the very reasons of the disruptions caused by the Elephant in the Room! The other way is a fully custom designed home which is a more risky path with additional costs upfront and no certainty as to final pricing and approvals until well into the process when it is hard to change course. Our pathway is to offer Limited Edition Collections of designs aimed at every Lot type and with a certain amount of individual choice that makes it feel closer to a Custom home than an ‘off the shelf’ plan. We offer a base price for guidance and then allow optional upgrades which we negotiated with Suppliers at preferential rates. This is still our ideal model as it does offer a level of certainty and cost saving, but it is just taking longer to pull together due to the volatility in pricing and delays caused through Covid. We believe this model can save tens of thousands both up front (professional fees, time blow outs etc.) and in the final house price over a Custom designed solution.
The Quality : We believe in the adage that quality is remembered long after the price is forgotten. We have gone to extremes to source quality, local if possible, fittings fixtures and fittings at the best price point possible. This has included having information sessions with our selected suppliers and subbies to bring them on board and give them a sense of the bigger picture of Econests so that they take ownership in the final product and offer us fair rates. It is always an option to reduce the specifications of our products, but we believe this to be a short term gain for long term pain as the cheaper products inevitably break down sooner or don’t perform as well. So we would try resist this as far as we can.
The Quantity : By limiting ourselves to around 20 Econests per year we feel we are hitting a sweet-spot in terms of being enough to negotiate some good deals on, but not too much to lose full control of the build process and scheduling of materials and supplies to avoid time blow outs and loss of quality. There are too many horror stories of builders being over committed and under staffed. By taking on a limited number of homes in the Ecovillage we can ensure that our timelines and quality of build are maintained.
By reducing the number of steps (and hence costs) involved in the traditional ‘custom design’ model (shown on left) we aim to provide more certainty around costs, timing, energy efficiency and reduce the stress often involved in the building journey. We provide a funnel of Ecovillage compliant designs (the ‘Products’) that can very quickly move from selection through to construction with far fewer steps involved. Fewer steps = greater certainty, fewer up front costs, faster and more efficient processes.
Some practical options for potential home owners
So far we have explained some of the reasons for these unique circumstances and how we are working our model to try address the uncertainty caused by the Elephant in the room. This is all very well in principle but if the dream of home ownership in the Ecovillage still seems like a bridge too far is there anything else you could do that may help get you over that line? Here are some of the suggestions we are making to Clients grappling with that question:
1 . Build Smaller
It’s the Great Australian Dream to have the large house with multiple rooms to cater for every possible occasion or circumstance, but in times like these we need to reset expectations. The easiest way to reduce energy consumption, material usage and also cost is to build smaller and have fewer rooms. That is why each Collection of our homes is designed in multiple formats, from 2 x 1’s to 4 x 2’s , to offer the choice but still allow for downsizing if circumstances require.
In a recent case study our Clients dream of a 3 x 2 plus a double carport with Studio proved financially unattainable, but after much soul searching they realized they could make do with a 2 x 2 and a single carport. The extra space on their Cottage Lot could allow for more garden and in time they could add on a Studio or third bedroom if circumstances changed. They also realized that in time once the Ecovillage established there would be other opportunities to share office space that may be more sociable than having a dedicated bedroom to use as a home office. There will also be a range of short stay accommodation options in the Ecovillage for those unexpected guests who you would normally reserve a dedicated (and seldom used) “Guest room” for.
So sometimes its just a matter of resetting expectations.
2. Phase it
A common solution available to most Lot Owners in the Ecovillage which seems to be a popular choice is to build an Ancillary Unit (Granny Flat ) first and wait to build the main residence when conditions improve ( however, refer to above section on “should we wait for things to normalise?”) If you were planning on building an Ancillary Unit anyway then this could be an option to at least get you living in the Ecovillage Community sooner. However, if the Granny Flat was just on your ‘wish-list’ and you are building it just to ‘get a foot in the door’ so to speak, you do run the risk of depleting your assets and not being able to afford your dream home when that time comes. Remember too that you should have your overall site plan worked out and an idea of the ‘Grand Plan’ so that you ensure everything will be able to fit. That is why all our plans give an indicative layout of where the Ancillary Unit is best located.
Also, a word of caution : you may find the option of building smaller will cost you less overall , but in actual square metre rate costs a small home will be a higher rate as the proportion of the expensive areas (bathrooms/kitchens) to the less expensive areas (bedrooms/living) is higher than in a larger home.
Another Phasing option we are looking at is the option to build the house first and the outbuildings (carports/sheds/studios) later when circumstances permit. This at least allows the home owner to get living on site and working on the gardens even if the vehicles have no shelter to begin with. For this reason, and also because each owners needs may vary for carparking/workshops etc. we are looking at a house only price package option.
3. Think outside the box
Sometimes it comes down to some out of the box thinking , and we would love to hear some radical left of field thoughts you may have come up with in the wee hours of the night as you grapple with thoughts of the Elephant! (You would be surprised at how quietly an elephant can move around you at night without giving any clues - only in the morning when you see the distinctive footprints in the sand outside your tent do you realize it was even there - personal experience!)
One of my ideas I have dreamt of is creating a Community within the Community ( within the larger community and so on, much like one of those Russian dolls) By this I mean two parties could come together to purchase a Cottage Lot on which they could build two smaller homes, one of which would be classified as the Ancillary Unit ( although both in effect would be small enough to qualify). So two friends/ family members could in effect share the costs of certain elements (rainwater storage/the Lot ) with both enjoying benefits of things like the exclusive use area (and everything else the Ecovillage offers). In effect it could be like a very small co-housing community on a single Lot.
I don’t know of the administrative or legal ramifications of such an undertaking, that is why it is classified as ‘out of the box thinking’. But without some serious ‘out of the box thinking’ the Ecovillage itself would not exist - and I think you can all agree that such thinking is definitely needed in this world of ours.
A concept view of two “Cubby.houses” on a single Cottage Lot
So have we tamed the Elephant yet ?
I think most of us would agree that the “Elephant in the room” concerning building costs will be around a bit longer yet, but from what I’ve outlined above I hope you now believe that there are ways to live in relative harmony with the beast. I don’t think we should be waving the white flag yet, the Ecovillage offers that sort of ‘once in a lifetime’ opportunity that is too good not to make succeed. I for one have invested the larger part of the last two years (and substantial capital) trying to make Econests happen, and despite the unprecedented conditions I believe it is a unique model that will only benefit and get stronger from the challenges being thrown in our way. After all, in this age of huge uncertainty, our entire business model is built on trying to provide some certainty in what will possibly be one of your largest lifetime investments.
