A rapid rise in construction costs and new building code changes may mean homeowners are not fully aware of how much it might now cost to rebuild their most valuable asset.
CoreLogic’s home rebuild cost calculator, Cordell Sum Sure, is regularly updated to incorporate everything from price fluctuations in construction materials and labour to changes in building codes and industry practices that affect building costs.
Using Sum Sure gives insurers confidence their customers know the real cost of rebuilding, and offers homeowners peace of mind they have adequate cover to rebuild to the same standard if the worst happens.
With the rise in extreme weather events, the likelihood of this happening is increasing. The insurance bill for storms and floods in the past three years has now topped $12.3 billion, and one in 25 Australians has lodged an insurance claim because of an extreme weather event in that time.
Certain regions of Australia are forecast to be increasingly susceptible to cyclones, bushfires, riverine flooding, landslides and coastal storm surges as climate change gathers pace.
“A set and forget approach in insurance doesn’t work in times like this,” says CoreLogic’s Head of Insurance Solutions, Matthew Walker.
“We know the importance of having accurate rebuild costs, which is why we are so focused on keeping our costing data as up-to-date as possible. Insurers need to be confident that we are vigilant about covering every aspect that impacts on the cost of rebuilding, so we help them get the right product for their customers."
Staying current with building code changes
As a long-standing and engaged member of the Housing Industry Association and the national and state branches of Master Builders, CoreLogic has early warning of any changes in building codes that will affect costs.
“Given our huge data set, we are often engaged in the discussions around changes,” CoreLogic Construction Cost Estimation Manager John Bennett says.
The latest edition of the National Construction Code (NCC), Australia’s primary set of technical design and construction provisions, includes significant changes to waterproofing, accessibility and energy efficiency standards that will come into effect in 2023.
The major impact is in improved energy efficiency, with new houses required to attain a seven star energy rating (the current minimum requirement is six star). Costings for the new requirements are already being incorporated into Sum Sure.
“We’re taking into consideration everything required to achieve a seven star rating. We’re not only constantly updating on the basis of the NCC and state regulations, but on advances in building practices, building materials and technology,” John says.
Sum Sure also offers a Bushfire Attack Level (BAL) module with ratings for individual properties, greatly improving accuracy for property rebuild estimates in bushfire-prone areas.
A high BAL rating requires the use of non-combustible materials, door and window shutters or screens, ember guards on all openings, and metal supply lines for water and gas. CoreLogic modelling shows this can add up to $300,000 to the cost of rebuilding.
Taking higher construction costs into account
CoreLogic’s Cordell Construction Cost Index shows national residential construction costs rose by 11.9% in 2022, the highest annual increase on record in Australia excluding the period impacted by the introduction of the GST.
With energy prices forecast to increase by 20-30% in 2023, and a severe shortage of skilled labour, John says rebuild costs are expected to continue the upward trend.
“Where once we checked prices every three or six months, we now have items we need to check every month. With costs changing so quickly, it’s crucial that we stay on top of the data.”
The CoreLogic construction data team builds digital models that incorporate everything from the cost of bricks, double glazed windows, paint and labour to professional fees and services such as demolition and waste disposal. The models are regularly updated with the new data, and these power the Sum Sure calculator.
A homeowner or insurer can punch a property’s address into Sum Sure, then review the details – single or double storey; quality of fittings; number of bedrooms and bathrooms; energy ratings – and arrive at a replacement value that takes into account the materials, characteristics and location of that specific property.
Helping tackle the issue of under-insurance
Under-insurance has long been a concern for the industry. While some homeowners are gambling on the “it will never happen to me” mantra to reduce their premiums (increasingly risky as climate change gathers pace), others have failed to adjust the sum insured after major renovations or are simply unaware that costs have risen so rapidly.
In 2021, a CoreLogic survey of 579 Australian home owners indicated that at least 41% did not use a rebuild calculator or a quantity surveyor/registered valuer’s report to decide how much home insurance cover they needed, and 21% were not confident that their property was adequately insured.
Sum Sure helps customers calculate a realistic sum insured value. It can also be a valuable tool to help insurers prompt customers to reassess their housing insurance needs as conditions change.
“We want homeowners to arrive at a rebuild cost that is as robust as possible,” Matthew says.
“CoreLogic is helping them do this in a meaningful way."
Find out more about Cordell Sum Sure here.
CoreLogic Australia