Beware the building cost of carbon tax
THE introduction of the carbon tax on July 1 has received much attention, with most commentators acknowledging that it will have far-reaching implications.
Despite this, Master Builders has been surprisingly unsuccessful in pointing the spotlight at the inevitable impact the carbon tax will have on the cost of building and, in turn, housing affordability.
Unlike some industries, the building and construction sector is neither emissions-intensive nor trade-exposed.
But, despite direct emissions from the industry being quite low in comparison to other sectors, the price on carbon will have a significant impact because the sector uses many emissions intensive inputs such as cement, bricks, aluminium and glass.
The rising cost of construction will impact both supply and demand: The cost of building will rise, having effecting demand.
The cost impact will vary depending on the materials used, the size of the building, location and ultimately the customer.
The Government’s compensation package will offset some of the impact.
There are a range of forecasts, with the Centre for International Economics (CIE) estimating building and construction costs will increase by 1.42 per cent, while the Allen Consulting Group says it will cost about $3800 more to build its model two-storey, detached brick veneer 200sq m house.
As July 1 draws closer, building businesses have had the tricky job of factoring in these additional costs for jobs that will run past the commencement date of the carbon tax.
Unless they are confident of their estimates and can attribute the cost increase directly to the carbon tax, they cannot increase contract prices with the explanation that the increase is to cover the tax.
Where price increase claims cannot be fully substantiated, builders risk breaking the law and running foul of the ACCC.
Factoring in these additional costs is challenging given that many suppliers, manufacturers and distributors are still not sure how the tax will affect their prices.
While the initial impacts of the tax will be offset, in part, by the Government’s assistance package, the long-term adjustment implications of the carbon price are a source of major concern for the building and construction industry, in particular, the impact it will have on housing affordability.
The CIE estimates that industry production could decline because of the carbon tax by 12.6 per cent.
Unfortunately, these effects are likely to increase over time as the carbon price steadily increases.
There is a strong case for specific Government assistance to offset the inevitable increases to the cost of building, such as topping up the First Home Owners Grant and re-focusing it on new home building, or, at a state level, doing away with the need for rainwater tanks in new homes.
Any measures that will counter the rising cost of construction are imperative to Queensland’s overall economic recovery.