War in Ukraine Sending Shockwaves Through Australian Construction Sector

Australia’s construction sector was struggling with labor shortages, supply chain issues, and inflation prior Russia’s invasion of Ukraine. However, the military conflict is adding yet another layer of complexity and turbulence to building efforts in the country.

Master Builders Australia, the “only national voice representing all sectors of the construction industry,” has confirmed that timber from Russia and neighboring Belarus accounts for a portion of Australia’s overall lumber imports with the local industry relying on laminated beams used as structural supports in new home construction from that region. Last year, Australia imported $80 million worth of wood products from Russia and $2.6 million from Ukraine. Most of the imports related to builders’ wooden posts and beams—structural elements of housing construction.

Sanctions are adding to the war’s disruption to actual supply. Wesfarmers-owned retailer Bunnings ordered suppliers to stop buying “conflict timber” from Russia in March, adding its influence on global sanctions. This is in line with the company’s timber policy. At the time, Bunnings warned of a shortage of supply on top of existing constraints, particularly of composite laminated veneer lumber, in the coming months.

First Place Building Company’s Mark Vujovich said that the war is directly responsible for timber shortages, with 60 percent of the world’s supply of engineered wood product known as LVL (laminated veneer lumber) coming from Ukraine. “Right off the bat, as soon as the conflict started in Ukraine, it was like everything stopped,” he says. “We copped a 35 percent increase in costs pretty much on day one. We are hearing forecasts of that increasing by another 20 or 25 per cent”.

The Reserve Bank of Australia has confirmed that the war has resulted in sharp increases in the prices of oil and gas, base metals, and many agricultural commodities. These shocks to global prices will ultimately flow through, adding to inflationary pressure in the country.

According to Australian data, the cost of building a new home rose by 20 percent in 2021 due to material shortages, including timber, disrupted supply chains, and demand for skilled tradespeople. But it seems certain that is only the start, with costs set to rise further due to a 35 percent tariff increase on imports from Russia imposed by the federal government.

Builders have been pushed to the wall, with some now saying that if the situation doesn’t change, they would have to consider leaving the industry.