Covid home construction costs: Australia builder Stroud adds $70,000 to clients' bills

An Australian building company has demanded up to A$70,000 ($77,000) extra to complete customers' homes, blaming the huge jump in costs on "extreme price rises" in the industry, forcing one person to live in a caravan on their empty block of land and others to scramble to find the money.

One customer from South Brisbane told the Courier Mail his bill from construction business Stroud increased by a whopping $75,000 when the home was originally due to be built for $324,000.

They decided to ditch Strand – taking back their deposit — and finding another company to build the home.

More than 100 clients from Stroud's South Brisbane and Wide Bay franchises were sent a letter requesting a contract variation last year, flagging that they would need fork out up to $70,000 more to have their homes finished.

Probuild signage on a construction site adjacent to Caulfield Racecourse in Melbourne's southeast. Photo / NCA NewsWire

Another customer, who wanted to remain anonymous, told the Courier Mail that Stroud had promised a "100 per cent fixed price" guarantee but now the massive jump in costs would force them to change their plans significantly.

"We are now looking to build either a smaller house or one that's more expensive and having to redo all of our loans again," the customer said.

"We actually estimate this has us over $120,000 out of pocket, not to mention the mental health issues."

Stroud blamed the pandemic and supply industry for the price increases, adding they were "out of our control and could never have been anticipated" in a letter to clients.

Shockwaves have been sent through the construction industry as a number of companies have collapsed this year.

Two major Australian construction companies, including Gold Coast-based Condev and industry giant Probuild, have already gone into liquidation, blaming Covid-19 restrictions and ballooning material costs, impacting millions of dollars worth of projects.

Smaller operators haven't been immune either: Hotondo Homes Hobart and Western Australian outfits Home Innovation Builders and New Sensation Homes have also gone under.

A stark warning has been issued that half of Australia's building companies are on the brink of collapse, and it could mean thousands of people's homes are impacted in the coming months, according to an industry insider.

Russ Stephens, co-founder of the Association of Professional Builders, said the average cost of building an Australian home had blown out by between $40,000 and $150,000 and warned fixed-price contracts had to go.

He has cautioned that customers should stump up the money for a price increase or risk their builder going under and it costing a lot more to get their home complete.

Stroud, which is based in QLD, New South Wales and Victoria, told its South Brisbane customers that they recognised the situation was "upsetting and disappointing" but said "extreme price rises without any notice from suppliers have rendered the contract price insufficient to cover the expense of the contract".

Stroud Home Wide Bay said the price rises were a "last resort" in a statement.

"Like many in the construction industry, we simply could not cover these increasing supplier costs," the franchise said.

James Stroud launched the construction business in 2011. Photo / James Stroud / LinkedIn

"Like our clients, we wish there was another solution and we are devastated that [we] have had to take this step."

James Stroud, a carpenter, launched the business back in 2011 and on LinkedIn has spoken about the group's expansion.

"The growth of the Stroud group meant we had to look to aviation to keep up with it all," he wrote.

"I hold a pilot's licence for both helicopters and aeroplanes and love to travel between our teams and work face-to-face with the people who make it happen every day in the Stroud world."

Stroud is not the first builder to demand more money from its clients.

Dozens of Queenslanders building their "dream homes" were dragged into a fight with Oracle Platinum Homes after homeowners faced extra charges – some as high as $100,000 over the original agreed price.

The construction industry's woes mean people could miss out on ever moving into their "dream homes" or be left to fix up defective buildings, according to an insolvency expert.

Andrea Joyce, special counsel at Gold Coast-based law firm Twomey Dispute Lawyers, warned that buying off the plan could be a gamble for people looking to get into the property market.

A Stroud Sovereign Hill Display Home in Port Macquarie. Photo / Supplied

"That's a risk you take when you buy off the plan that the builder could go into liquidation or there could be unforeseen delays with council approvals that could mean the project can't be completed and settlements can't be completed," she explained.

"If that's the case, then the people who have been waiting for their dream homes to be built may not see that day."

A mum who moved into a townhouse built by Condev described the appalling living conditions inside the home, adding she wasn't surprised the company had gone under but was unsure if defects would be rectified.

Credit reporting company Equifax found construction insolvencies were 28 per cent higher in March compared to the previous year.

It revealed the first four months of the year has seen 270 construction companies filing for insolvency.