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Building costs surge boosts underinsurance risks

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A surge in construction costs during the COVID-19 pandemic has put homeowners at “extreme risk” of underinsurance, MCG Quantity Surveyors has warned.

MCG Director Marty Sadlier says the firm estimates the cost of building an average home in capital cities such as Sydney, Brisbane and Melbourne has risen more than 10% in the past six months, translating into an increase of $48,500 based given a median construction cost of $485,000.

Mr Sadlier says many properties in inner-city suburbs have construction costs of more than $1 million, while material and trade shortages are also increasing real costs by about 15% in many cities and towns.

“Property owners could be left hundreds of thousands out of pocket should an unfortunate event have them calling their insurance provider,” he said today. “Unfortunately, most will only discover they are woefully underinsured when it’s too late.”

Mr Sadlier says the average construction program on sites has increased by as much as 16 weeks due to material and trade shortages, and cost increases will worsen an existing underinsurance problem that may have seen more than 80% of property investors underinsured before the pandemic.

“Given the recent hikes in materials and labour costs, I’d be surprised if we weren’t closer to 100% of owners at risk,” he said.

Additional outlays such as professional fees, council charges and emergency accommodation, all add to the end amount that needs to be covered, Mr Sadlier says.

Building sector stimulus programs, natural catastrophes and supply chain issues affected by the coronavirus have contributed to shortages of materials and trades.

Homeowners should update their property insurance value at least every year, not rely on online insurance calculators to assess property replacement costs and shop around for insurance options, MCG Quantity Surveyors says.