Australia’s construction costs continue to rise at record rates

According to the national CCCI, residential construction costs increased by 11.0% over the 12 months to September, exceeding the 10% annual rise recorded over the 12 months ending June 2022, while the quarterly figure of 4.7% was higher than the previous quarterly figure of 2.4%. The most recent quarter’s figure was also above the 3.8% surge recorded over the three months to September 2021 when lockdowns were having a more significant impact on domestic supply chains.

CoreLogic Construction Cost Estimation Manager, John Bennett, said the Cordell costings team were continuing to see costs rising, especially across timber and metal materials, which was affecting framing and reinforcing.

“In particular we are recording significant volatility in pre-fabricated framing and the range of products affected by higher building material costs is only growing, with many suppliers having little choice but to pass on price increases,” he said.

“This quarter has also shown a larger increase in the cost of wall linings, including plasterboard and fibre cement, which previously had been relatively stable. It will cost you more to get into your house too, with the price of doors showing a sharp rise in the last quarter.”

Mr Bennett said while some suppliers have noted a stabilisation in sea freight prices it was the increasing cost of raw materials, labour and fuel that continues to place upwards pressure on residential construction costs.

“We’re also seeing this flow into other sectors. We’re seeing a large increase in waste disposal fees across most states, and volatility in professional fees and services, with Victoria and Queensland showing the highest cost increases,” he said.

The quarterly index change ranged from a low of 3.3% in Western Australia and 3.8% in South Australia to 4.0% in NSW, 5.8% in Queensland and 5.6% in Victoria. Construction costs over the September quarter were the largest increase on record excluding the September 2000 quarter which was impacted by the GST. Annually, Victoria recorded the largest growth rate of all states, with residential construction costs increasing by 12.3% over the 12 months to September 2022.

Mr Bennett said the industry is facing significant additional challenges each quarter, with suppliers having dealt with the impact of rising fuel, freight and electricity to their bottom line for more than 18 months.

“A shortage of labour and more expensive overheads continue to have a bearing on the industry and its impact on the residential construction industry has not been lost with ongoing delays to completion times and a blow out to builders holding costs during a period of market change.”

CoreLogic Research Director Tim Lawless said while the rising cost of construction was not new, the persistent increase in construction costs would continue to have a big impact nationally.

“This is an industry facing tough workload pressures against a backdrop of low labour supply, material shortages, rising interest rates and inflationary pressures,” Mr Lawless said.

“This new high in the cost of construction flows through to margins, unexpected costs for consumers and potentially lengthy delays to home owners who are waiting on the sidelines, often in rental or short-term accommodation, for the completion or possibly the start of their project.

“We also forget the impact to existing home owners and the insurance industry, as they struggle to reassess existing policies in a timely manner to make sure they are adequately covered in the event they need to make a claim.”

Mr Lawless said ongoing labour shortages and supply issues meant it was likely conditions in the construction industry would remain challenging with little reprieve expected in the short to medium-term.

“The backlog of construction approved during COVID is still being worked through and on top of that is the rebuild and repair work following this year’s major weather events, with more forecast this month. The demand and pressure for construction materials and trades is expected to continue,” he said.

“There’s no quick solution for providing additional materials and fuel costs remain elevated. All of these factors have an impact and are likely to push building costs higher for some time yet.”

“Persistently high construction costs are clearly adding to inflationary pressures as well, with the price of new dwellings one of the most significant contributors to the June quarter inflation reading,” Mr Lawless said.

CoreLogic researches, tracks and reports on materials and labour costs which flows through to its Cordell construction solutions to help businesses make better decisions, estimate rebuild and insurance quotes easily and, ultimately, price risk effectively.

Key findings by state – Q3 2022 CCCI Report

• NSW’s 4.0% rise in construction costs over the three months to September 2022 was its largest quarterly increase on record, excluding the September 2000 quarter which was impacted by the introduction of the GST. Annually costs have increased 10.3%.
• Victoria’s CCCI recorded a 5.6% increase in construction costs over the September quarter, more than double the 2.5% from the June quarter. Annually costs increased 12.3%, the highest state level increase.
• Queensland saw construction costs rise by 5.8% over the September 2022 quarter, the highest quarterly increase at a state level and well above its June figure of 2.3%.
• In Western Australia, construction costs rose 3.3% over the September 2022 quarter, the lowest quarterly growth rate of all states.
• South Australia’s annual increase in construction costs was up 3.8% for the September quarter and 9.9% for the year.

The CCCI report is a quarterly index measurement that tracks the rate of change of residential construction costs. The modelling covers ‘typical’ new residential builds most common among newly built Australian homes.

For more information about the CCCI or to enquire about accessing a copy click here.

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