Shortages hit home

Shortages hit home

Housing grants, natural catastrophes and the coronavirus have combined to create challenges for insurance building and repair work

By Wendy Pugh

After towering eucalypts toppled over during storms that hit Victoria’s Dandenong Ranges in June it was pointed out there was a lot of value in the fallen timber.

As part of the clean-up, state-owned VicForests is looking to buy logs that meet specifications and there’s likely to be strong demand for any resulting processed building products.

Timber is among materials affected by shortages caused by a confluence of natural catastrophes, the COVID-19 pandemic and government actions to power the economy through difficult times.

The building supply side is struggling to keep up with demand across the country, material costs are increasing, and the insurance sector and its customers are navigating the difficulties.

“There’s no doubt that material shortages are posing challenges for the industry at the moment,” Suncorp Head of Home Claims, Queensland Joel Manning tells Insurance News.

“The supply chain has been disrupted by COVID, and economic factors closer to home are compounding the challenge of slower imports. With international travel off the table, record low interest rates and government incentives such as HomeBuilder, Australians’ appetite for renovations and new homes is driving huge demand for materials.”

The Federal Government’s HomeBuilder stimulus, offering grants for new homes or substantial renovations, has attracted strong take-up and, combined with the low interest rates and state-based programs, has spurred a housing activity surge.

The program received more than 121,000 applications – four times original expectations – with $25,000 grants offered from June last year before scaling back to $15,000.

The eligibility deadline for starting construction was in April, extended from six to 18 months after building industry groups warned tight timeframes mightn’t be met due to material backlogs and skilled labour shortages.

The Housing Industry Association (HIA) describes HomeBuilder as the largest direct injection of government money into the owner-occupier housing market in Australia’s history, while forestry and wood products data analysis firm IndustryEdge says it has contributed to a boom without precedent.

IndustryEdge Managing Director Tim Woods says housing is highly responsive to stimulus measures and has become the modern “go to” in times of economic trouble, but the current scenario has resulted in hyper-stimulation.

“Demand is just off the wall and it has grown at the fastest-ever rate, so no supply chain can keep up; it’s just impossible,” Mr Woods tells Insurance News. “Economic interventions are always a balancing act and sometimes we overtip the balance.”

While the demand stimulus has addressed economic stresses caused by the pandemic, the coronavirus has also complicated supply issues, with outbreaks and restrictions hindering the movement of materials locally and internationally and further contributing to shortages of tradespeople.

The HIA Trades Availability Index shifted marginally from -0.55 to -0.53 in the June quarter, as the industry experiences one of the most significant skills shortfalls of the past 20 years.

“This small improvement reflects quarterly volatility, not a material improvement in the supply of trades,” HIA Economist Angela Lillicrap says. “The shortage is occurring to varying extents across all regions and all trades measured in the report.”

In demand: a building boom has left insurers facing a shortage of materials

For insurers, the rise in new home construction comes as active demand for building and repair work continues following claims triggered by a string of catastrophes from the Black Summer bushfires to recent weather disasters.

“Some of the most significant difficulties we’re facing include a shortage in metal roofing materials due to the Rockhampton and Springfield hailstorms in 2020, timber shortages and delays on custom items, particularly for older homes,” RACQ Group Executive Tracy Green tells Insurance News.

“Timber shortages are due to general demand, and also a number of large international mills shutting down. We have seen increased wait times for supply, and builders in southeast Queensland having to bring trusses in from other parts of the state.”

Similar delays exist for custom fabrication items, including window awnings, roller doors of atypical size, as well as custom-size water tanks and sheds. Items that aren’t mass-produced are often required for older homes.

“These shortages, combined with high demand for tradespeople, is having an impact on claim-handling times,” Ms Green says. “We’re working hard to minimise impacts to our members, but some have been unavoidable. Claims costs have also been impacted.”

Insurance Council of Australia (ICA) figures show $500 million in losses from the Rockhampton and Yeppoon region hailstorms in September, while Queensland’s Halloween storms that brought giant hail caused $998 million in damage.

Over the past three years insurers have paid out more than $7.4 billion in natural disaster claims, with more than $5.6 billion paid out since the 2019 bushfires.

Catastrophes this year have included the Perth Hills bushfires, Cyclone Seroja, the NSW and Queensland flooding that hit the Hawkesbury area and the Mid North Coast in March and the Victorian June storms that caused wind damage in the ranges and flooding in Gippsland.

Allianz Australia National Manager, Claims Technical and Business Operations Mark O’Connor says the Black Summer bushfires generated claims and affected plantation timber, while the availability of tradespeople who could normally travel across regions has been hindered by the active disaster period and COVID issues.

“What you are seeing is a significant number of catastrophe events occurring across the country in an unusually short period of time,” he says. “There is tons of work, but we don’t have enough workers. Then there’s the resourcing piece, and the government stimulus has added another layer.”

The building surge has centred on free-standing homes, predominantly wood-framed, in contrast to previous apartment-led booms. Apart from timber, sourced locally and imported, other materials that have experienced delays include bricks, while a tile shortage has mostly been resolved.

The HIA told a NSW Parliamentary inquiry into the sustainability of the timber and forest products industry in May that timber framing supply times had increased from three weeks to about 8-10 weeks.

Timeframes for new home completions are now sometimes blowing out by months. The impacts vary according to particular trade and material shortages in different locations, while smaller repairs may cause fewer problems.

IAG Executive General Manager, Supply Chain Garry Baddock says the unprecedented demand for materials has created a challenge for the construction industry and the insurer is monitoring the situation closely.

“The majority of the building products we need to repair our customers’ properties are Australian-made, sourced locally and in good supply,” he says. “However, we continue to work with our builders and trade suppliers to forecast demand and manage any potential impacts.”

Import delays reflect freight issues, slower-than-normal customs processes, country of origin production problems and international competition for supplies, with Australia not alone in using home building as an economic stimulus.

North America in particular has been competing for imported timber, including engineered wood products. Timber pricing there has increased by about 400%, adding more than $US23,000 to the cost of a new home, diverting supply away from Australia and placing pressure on the global market, HIA says.

Allianz’s Mr O’Connor says forward thinking and planning is required in the current environment, while communication with policyholders is vital where works may take longer than expected.

Impacts when fire or severe weather has destroyed a home may include longer periods living in temporary accommodation, provided as part of a policy’s cover.

“From a customer perspective they are still protected, albeit inconvenienced as they are not back in their own home,” Mr O’Connor says. “From an insurer’s perspective there is that increased cost that might then be incurred because we weren’t able to get those customers back into their home as quickly, and like all claims costs that has a flow-on effect.”

As for the availability of tradespeople, ICA says it has been working with state governments and building industry associations to ease constraints.

That has included looking to increase the availability of trades required to repair and rebuild properties of natural disaster-impacted policyholders, and working to allow interstate workers to travel where needed amid border closures.

Seeking clarity around border restrictions and increasing the feasibility of bringing in qualified trades from overseas have also been part of the discussions.

Complications continue to be thrown up by ongoing coronavirus outbreaks and lockdowns, with the more infectious Delta variant leading to further rounds of restrictions and border closures.

New South Wales and South Australia halted non-critical building repairs as part of measures to limit spread of the virus last month. ICA emphasised in response that the industry is doing what it can to continue important work on claims, but the lockdowns are likely to exacerbate shortages.

“Prior to these current restrictions a shortage of trades and goods and state border closures, on top of a number of natural disasters, had been impacting insurance repairs and remediation times for customers,” ICA Chief Executive Andrew Hall said in a statement. “Insurers ask for patience and understanding from the community as they work to repair property and vehicles.”

Suncorp highlights the value of having scale and long-standing relationships with builders and other suppliers across a national network in the current circumstances.

Trades and materials pressures may continue for some time, given the housing pipeline and with COVID-19 outbreaks still sweeping around the world and testing the mettle of governments.

Mr Woods says building products supply is not “a magic pudding” and the current situation in Australia fuelled by stimulus programs represents “the law of unintended consequences writ large”.

Monthly housing approvals have set records, there’s the likelihood of two consecutive quarters with the largest-ever commencements and the biggest ever overhang of uncompleted work, and IndustryEdge says it will be at least another 12 months before all the homes in the pipeline are built.

HIA says the trades skills shortage, measured by its index, is expected to ease next year as the number of new homes commencing construction slows.

In the meantime, insurers will have the uncertainty of possible impacts from any future natural catastrophes.