Why building or renovating a home is set to become a lot more expensive with the Iran war adding $85,000

The cost of building or renovating a house in Australia is expected to soar by double digits over the coming year with the uncertainty in the Middle East already pushing up the price of installing a bathroom and transporting concrete.

The average cost of building a new house was already climbing at triple the pace of inflation during the last financial year.

The Iran war on top of that would add $85,000 to the construction bill for building the typical new home in Australia and push it even further above $500,000.

Soaring crude oil prices as a result of the conflict is already making plastics a lot dearer, with piping costs typically going up by a third.

Reece, the nation’s biggest supplier of bathroom and plumbing components, has this week imposed 25-60 per cent price increases for polyethylene and PVC piping.

Tradelink, Australia’s second biggest plumbing supplies group, is putting up prices for toilet seats from June 1, with increases of 20-35 per cent projected for Raymor and Essentials brand products.

Building products giant Boral is already significantly increasing transport costs to move materials like concrete blaming “recent escalations in global energy, commodity and supply chain costs”.

Higher diesel costs, expected interest rate rises to arrest surging inflation combined with higher building material prices would conservatively see a 10 per cent increase in home building costs over the next 12 months than would otherwise have been the case, building industry veteran Wilhelm Harnisch told The Nightly.

“That’s a likely outcome compounded by all sorts of other stuff,” the University of Canberra built environment adjunct professor said.

“There’s going to be cost increases, certainly in the short to medium-term.

“Even if the Iran war were to finish today, the flow-on impact of the Iran war will continue likely for at least another 12 months as fuel prices and uncertainties wash through the supply chain.”

The average cost of building a new house in 2024-25 was $474,939, which in itself represented a 7.1 per cent increase compared with the previous financial year, Australian Bureau of Statistics data released this month showed.

The increase then was triple the low inflation rate at the time.

A building cost increase for 2025-26 in line with the previous financial year, plus the effects of the Iran war would see average house building costs climb to $559,525 — adding $84,586 to the construction bill.

Builders are already more likely to be insolvent and higher construction material costs would particularly hurt those who recently signed fixed-price contracts before the Iran war started in late February.

Mr Harnish, who spent 34 years with Master Builders Australia as chief economist and CEO, said residential construction insolvencies were likely to increase over the coming year, leaving Australians with fewer builders to choose from.

“Certainly, for those builders who signed contracts before the Iran war started and yet to start, where there’s no opportunity to claw back the increases, and for those obviously that are already working on tight margins, there is an increased risk for them to become insolvent,” Mr Harnisch said.

Even before the Iran war, energy efficiency requirements were already adding to building costs.

The 2022 update to the National Construction Code to incorporate energy efficiency standards had added $25,000 to the cost of building a home, the Housing Industry Association’s chief executive for industry and policy Simon Croft told a Senate hearing on Wednesday.

“We do know the National Construction Code 2022, which was the one that incorporated seven-star energy efficiency, liveable housing, condensation, significant water proofing changes added $25,000 to the construction of a home,” he said.

“The growth of regulation and red tape on construction costs has added 40 per cent to construction over the past decade.”

Higher construction costs are also set to further hinder Labor’s National Housing Accord plan to build 1.2 million homes over the five years to June 2029.

Australia is meant to be building 240,000 new homes a year.

But in the first 18 months of the housing goal, the building completion rate was running 77,498 short with 282,502 completions instead of 360,000, ABS data showed.