The wave of housing approvals early this year has already pushed up construction costs across Australia.

CoreLogic’s latest Cordell Construction Cost Index (CCCI) showed a construction cost increase of 3.8% in the three months to September 2021, surpassing the consumer price index of 0.8% over the same period.

This latest rise in construction costs is the largest quarterly increase since 2000, when costs rose 7.2% following the introduction of the Goods and Services Tax (GST).

Year-on-year construction costs rose 7.1% in September, the highest annual increase since March 2005.

Tim Lawless, research director at CoreLogic, said the recent upward trend in home approvals, which peaked in March, has already progressed to the construction phase, leading to widespread demand for materials and merchants.

“The quarterly growth in construction costs is happening everywhere and is not limited to one city or state, it is a national trend,” he said.

This increase in construction costs was due to house prices rising 20.3% annually.

Mr Lawless said the recent rise in construction costs could further affect house prices.

“There is already evidence that the cost of new housing and housing is putting upward pressure on Australian inflation and these numbers will only add to that pressure.”

Stands

Construction cost growth (%)

September 2021

Quarterly

Annual

New South Wales

3.8

6.6

Victoria

3.5

6.8

Queensland

3.8

8.0

Western Australia

4.3

7.5

South Australia

4.4

7.5

NATIONAL

3.8

7.1

Construction cost rise likely to continue

Mr Lawless said price volatility persists in the housing sector, with recent quarterly gains being driven by rising wood costs, particularly in structural wood, metal products and plumbing.

“For anyone looking to build or renovate, or anyone who owns a business involved in the housing industry, that means they will likely all face significantly higher costs,” he said.

The introduction of the HomeBuilder scheme last year and the sharp increase in the number of approved homes early this year resulted in a 50% growth in the number of homes in the year to June.

For Mr. Lawless, it is critical to note that while approvals are now on a declining trend, it will be some time before they move into construction and construction. This would lead to a longer period of upward trend for construction costs.

“This doesn’t look like a near term spike. The increase in construction costs is due to the amount of construction activity approved at a time when we can’t import a more skilled labor force and are facing significant supply chain disruptions,” he said.

Mr. Lawless predicts that inflation in construction costs could potentially continue for the next 12 to 18 months.

“The industry is unlikely to be able to accommodate such a significant cost increase in its margins and higher construction costs will eventually be passed on to consumers, putting further pressure on the price of a new home or renovation,” he said.

Photo by Greyson Joralemon on Unsplash.

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