Homeowners could soon be affected by a looming 'insurance disaster' due to rising construction costs, according to new research.
Many Aussie homeowners are at risk of a 'massive' underinsurance blow, according to quantity surveying firm MCG Quantity Surveyors.
According to MCG, the surge in construction and labour costs, amid the COVID-19 pandemic, has put homeowners at risk of being 'extremely underinsured'.
This means that many new homeowners are just "one disaster away from financial ruin", according to MCG director Marty Sadlier.
"Property owners could be left hundreds of thousands out of pocket should an unfortunate event have them calling their insurance provider," Mr Sadlier said.
Mr Sadlier also said many homeowners won't find this out until it is "too late".
"The Insurance Council of Australia are quoted as saying that prior to the pandemic, 83% of property investors were already underinsured," he said.
With the recent hikes in material and labour costs, Mr Sadlier said he would be "surprised if we weren’t closer to 100% of owners at risk."
Building costs up 10% in capital cities
In addition to the findings above, MCG estimates have shown that the costs of building a house in Brisbane, Sydney, and Melbourne have increased by 10% in the last six months.
According to Mr Sadlier, the increase in building costs have been "extraordinary" over the past six months.
The median construction cost in these three cities is $485,000, meaning this increase represents an additional $48,500.
"But this is just an average. Many properties in inner-city suburbs have construction costs of well over $1 million," Mr Sadlier said.
In addition to increased house prices, average construction lead times have increased by as long as 16 weeks due to mass supply shortages.
"As such, there are plenty of cities and towns where real costs have gone up by 15% or more for the end user once these delay costs are accounted for," Mr Sadlier said.
'Three-step solution' to being underinsured
Mr Sadlier said there are three steps homeowners can take to ensure they are sufficiently covered.
1. Update property's insurance value regularly.
2. Don't use online insurance calculators - use a professional, such as certified quantity surveyors (CQS), to verify replacement values.
3. Shop around for insurance options.
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