A combination of low interest rates, government stimulus packages, land shortages and a COVID-induced shift towards the regions has created record demand for new builds in regional Victoria, but the increased demand has then created material shortages and increased prices on materials, causing some projects to cost about 10 per cent more than they were contracted for, which has to be paid out of the builders' cash reserves.

Master Builders of Victoria country sector chair Stuart Allen said the material shortage started with timber, but has spread throughout the industry to glass, plaster and other materials.

"Initially, it created a shortage mainly on timber products and then we had a shortage of timber products, largely because of some of the fires, because of demand, because of global demand around because other countries we're doing the same stimulus packages," he said.

"We were no longer importing about 20 per cent of our timber products, which is what we normally do, so no longer were we getting those products and then on top of that, there are shipping issues and container shortages, so it's like a perfect storm."

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Mr Allen, who also owns Stuart Allen Builders, said with materials hard to come by, projects were then being delayed and time frames were being blown out with a 12-month job now taking 18 months.

"Generally, builders are locked in the contracts and our costs are going up and we're not able to get those costs back anywhere," he said.

"Therefore, we're starting to see builders are becoming more stressed or under pressure because they're struggling to remain within budget on their jobs and, possibly, some of their projects are becoming loss-making in extreme circumstances."

With every stage of a build being delayed, Mr Allen said that was also having an effect on the cash flows of many builders.

"If your business hasn't got great cash flow, that's where you're going to struggle. Where you're used to having nice cash flow and jobs are running smoothly, it's not taking longer to be able to get that cash flow coming into your business," he said.

"Everyone certainly has different pressures, but everyone is certainly feeling exactly the same way. I think what we're hearing out of the government is I think insolvencies are up 30 per cent in the building industry, so it's affecting businesses.

"There will be more businesses getting into trouble [if this continues]."

Mr Allen said the cost increases on materials had become out of control in recent months.

"At the moment, we're seeing monthly increases on all of our products. Normally, we might see little increases, but at the moment, we're seeing monthly increases of 10 per cent or more on products. Over time, we've seen over 50 per cent increases in timber and steel over the last six months so it's putting massive pressure on," he said.

"We're not complaining because there's a lot of work around, the problem we have is the constant price rises at the moment, that's the real difficult one builders are facing at the moment."

Stroud Homes Ballarat director Simon Walshe said his business had been dramatically affected by the material shortages.

"Not only the shortages, but also the price rises that have gone with those. It's definitely hurting the bottom line and I know a lot of builders out there are definitely hurting from it, that's for sure," he said.

"We completed a job where we struggled to get a prefab frame, so we did stick frame on that one and we bought what materials we could get at the time and we took around a $7000 or $8000 loss on just the frame alone."

Mr Walshe said the cost of building a new home had risen 10 per cent in the last 10 months.

"You're talking about a $50,000 increase on materials, and labour for that matter. If you were to sign those up last year and you're only starting to build them now, that essentially has to come out of your bottom line," he said.

"The delays really hurt in terms of our overheads, they keep ticking along and a build is built up generally of stage claims, so the quicker you get to each of those stages, the quicker the money comes in.

"If you can't finish a certain stage for whatever reason, it could be a $1000 item and you can't finish the stage, that could be the difference of a $100,000 claim coming into your into your bank so it does make things difficult."

Mr Walshe said every builder in Ballarat was suffering from the same problems.

"Every trade and every supplier has probably overcommitted due to the work that's in Ballarat at the moment," he said.

"Labour components don't have enough to get through what they've committed to and there just isn't enough material to feed demand, so shortage of labour, shortage of materials, it's really making it difficult.

"What we hear is it's still another six to 12 months before we can get to some sort of normality."

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