Conflict in Iran and resulting fuel supply shortages have exposed a ticking time bomb for homeowners that could add hundreds more to their expenses this year – on top of rising interest rates.
Higher fuel prices are expected to drive another surge in building costs, which would mean the replacement cost of Aussie homes would surge – and with it, insurance costs.
It would be yet another blow for homeowners already facing the threat of more interest rate hikes as all mortgage holders are required by their lenders to have building insurance.
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A similar phenomenon occurred during the early years of the Ukraine War and the Covid pandemic: halts in global supply chains drove a rapid rise in building materials costs and insurers responded with price hikes.
![Fuel Storage Facilities On Canvey Island](data:image/svg+xml,%3Csvg xmlns="http://www.w3.org/2000/svg" viewBox="0 0 1280 720"%3E%3C/svg%3E)
Disruptions in global supply chains threaten to increase Aussie building costs, which in turn will put upward pressure on home insurance premiums. Picture: Dan Kitwood/Getty Images
Some of these added costs are still being passed on by insurers.
Analysis by Compare the Market showed the average annual bill for home and contents insurance across the nation’s five biggest capitals rose by $359 over the last year.
Premiums in Sydney rose the sharpest, adding an average $385 to the typical home and contents premium. It has meant Harbour City policy holders are now required to pay a total of $3200 a year, on average.
Brisbane premiums rose an average of $311 over the year, with the city recording some of the sharpest rises in building costs over the period.
These national cost rises predated the war in Iran and Compare the Market economic director David Koch warned more premium price hikes could be in store.
“Insurers have a lot of thinking to do about the threat of natural disasters and big claim events while the cost of everything is on the rise,” Mr Koch said.
“And with a new inflationary storm brewing off the back of the war in Iran, I think we need to brace for more price rises in the year ahead.”
Compare the Market economic director David Koch has told Aussies to brace for more rises in their insurance premiums.
Modelling from the Housing Industry Association showed Australian home building costs were likely to rise by about 7 per cent this year, in line with high inflation and the experience from the Covid pandemic.
This would add about $36,000 to the typical cost of building a new house in NSW, which currently costs about $521,000, according to the latest ABS figures.
Cost rises would be even higher in the ACT, with a 7 per cent rise in building expenses likely to add $40,000 to the price of building. House building cost rises in Victoria and Queensland would be closer to $31,000.
HIA chief economist Tim Reardon said he anticipated a similar situation to the pandemic, when building costs rose rapidly on account of supply chain disruptions.
He added that rising interest rates were another factor, which typically flowed through to building costs in about 18 months’ time.
House construction costs are expected to rise by about 7 per cent this year.
Rises in building costs have typically preceded rises in home insurance costs, although the exact dollar amount link is difficult to measure.
Insurers typically raise their prices when construction expenses rise because of the rising costs of potential payouts they would face if policy holders were to make claims.
Building insurance is also often calculated based on the likely construction cost of the dwelling, not the property’s market value.
Mr Koch urged Aussies to defend themselves against more premium hikes in the months ahead by shopping around for cheaper deals.
“These price rises we are seeing are scary, but most people still do have the power to save by shopping around,” Mr Koch said.
The typical Sydney homeowner is paying about $3200 a year in home and contents insurance.
“We consistently see price differences of hundreds, sometimes thousands, of dollars between the cheapest and most expensive quotes for the same cars and houses.
“It’s compelling proof of the power of comparison. Now when the cost of everything is on the rise, I don’t think we can afford to let these premium hikes go through to the keeper.”
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