Billionaire Gerry Harvey reveals why construction in Australia has come to a standstill as he issues a timely warning

Billionaire Gerry Harvey says building new properties in Australia has ‘never been more difficult’.

The Harvey Norman co-founder, 84, said a rise in construction costs had made new property developments increasingly unviable.

Although best known as the founder of home goods retailer Harvey Norman, Mr. Harvey, along with his wife and CEO Katie Page, has also invested in real estate.

Mr Harvey said he had been forced to put some of the locations in the ‘too hard basket’.

“The biggest problem I have with real estate is that I have a lot of developments I want to do, but the… costs are too high,” Mr Harvey told the Australian Financial Statement.

‘I don’t make any money doing the development. In that sense it has never been so difficult.’

Mr Harvey, who has amassed a fortune of $3.39 billion according to the Financial Review Rich List, believes there is no sign of any improvement in the prospects for the construction sector.

The businessman was dealt a major blow after a proposed 20-unit development in Sydney’s Elizabeth Bay was rejected after a court ruled it would result in fewer houses on the same site, while the current block contains 28 apartments.

Mr Harvey said he was not concerned about the rejection as a revised plan and new application could be submitted by the developers.

“I’ve invested in so much real estate that it doesn’t matter,” the billionaire said.

Quantification agency RLB has predicted that construction costs will continue to rise as inflation drives up the prices of materials and a shortage of tradesmen causes subcontractor costs to soar.

These supply issues are being exacerbated by rising demand for housing at a time when Australia is seeing record levels of immigration.

Costs in Brisbane are expected to rise by a further 5 per cent by 2025, according to the company’s latest quarterly report.

Meanwhile, construction costs in Perth rose to 5.2 per cent and are expected to rise a further 4.9 per cent next year.

In Sydney and Melbourne, costs are expected to rise by 4 percent and 4.5 percent respectively, following increases of 5 percent and 5.5 percent this year.

RLB said cost increases across the sector were creating further uncertainty amid a slew of company bankruptcies and resulting job losses.

Research firm RLB has predicted construction costs will continue to rise as Australia grapples with a worsening housing crisis (pictured, an aerial view of Melbourne)

“Developers are currently taking a more cautious approach, including postponing or canceling projects,” the report said.

RLB research and development director Ewen McDonald said the construction is currently navigating a multifaceted and challenging landscape.

“The shortage of skilled workers is a major problem because it drives up labor costs and creates intense competition for available labor,” McDonald said.

‘These factors place significant pressure on project budgets and timelines.

‘While prices are stabilizing in some regions, overall market conditions remain challenging due to labor shortages, rising costs and strong demand.

“The construction industry is likely to continue to struggle with these pressures, although the scale and impact will vary from region to region.”

It comes after east coast developer Bensons Property Group entered voluntary administration on Friday amid “extremely difficult” conditions in the sector.

BPG is currently being deployed to build 1,337 apartments in Victoria, Queensland and Tasmania worth an eye-watering $1.5 billion.

BPG will propose to creditors to continue its activities during the administration period.

“This will ensure BPG’s employees, trade creditors and people who have purchased apartments are protected, and the $1.5 billion project development pipeline will be delivered – meaning more than 1,000 new Australian homes,” the company said in a statement .

“There are no plans for redundancies and, importantly, BPG is doing this with the support of its founder, its lenders and key investors.”