- Construction costs across the nation increased 0.8% in the three months to December.
- Victoria recorded the fastest acceleration of construction costs among the states.
- Growth in building costs may stay low due to low approvals.
CoreLogic‘s Cordell Construction Cost Index (CCCI), which tracks the cost of building a new dwelling, recorded a growth rate of 0.8% over the three months December, 20 basis points below the pre-Covid decade average of 1.2%.
The annual growth for 2023 came in at 2.9%, below the pre-Covid decade average of 4.0%. This is the smallest annual rise in the national CCCI since the year to March 2007.
CoreLogic economist, Kaytlin Ezzy, noted these latest figures suggest re-acceleration is more a return to trend rather than a new surge in construction costs.
“While up over the quarter, the annual change in residential construction costs continued to ease as larger quarterly increases fell out of the annual calculation,” she said.
“This suggests that growth in construction costs have normalised after recording a recent peak of 11.9% over the 12 months to December 2022, albeit at a higher level.
“Although 26.6% higher than at the onset of the pandemic, the recent surge in CCCI is below the increases seen across national house values, with CoreLogic’s Home Value Index rising 36.5% over the same period,” she said.
Numbers by state
The CCCI for NSW rose 1.0%, with the annual reading reaching 3.1%, the lowest annual change since the 12 months to March 2021.
In Victoria, the CCCI was recorded at 1.1% over the quarter and had the quickest acceleration in construction costs. However, the annual increase eased at 2.9%, way down from the 13.0% recorded over 2022 and is Victoria’s lowest annual change since 2016.
Queensland recorded its lowest quarterly rise in over 20 years, at just 0.1%; Western Australia construction costs rose just 0.7% and recorded the lowest annual rate among the states at 2.3%.
No clear trend
CoreLogic construction cost estimation manager, John Bennet, noted there is no clear trend emerging among most product types.
He added that depending on the supplier, both increases and decreases were recorded in timber and metal prices, although price rises have been noted for hardware and chemical items.
“This tells me suppliers are either bringing their product pricing back down to acceptable levels from the increases during the Covid period, or they are increasing to set up for the year ahead,” he said.
Could growth in building costs stay low?
Ezzy noted that the pace of CCCI growth this year could be shaped by a few factors, such as the national dwelling approval levels.
“Although national dwelling approvals have risen from a recent low of 12,185 in January, the latest data from the ABS showed that dwelling approvals remained -15.8% below the decade average in November at 14,500,” she said.
Kaytlin Ezzy, CoreLogic
“Although a number of projects are still moving through the construction pipeline, the recent lull in approvals could result in a shortfall in new projects, which would help keep growth in building costs low, due to greater capacity in the construction sector.
“However, with the CPI (consumer price index) continuing to ease, it’s looking increasingly like we’ll see a cash rate cut in the second half of 2024, which could fuel housing demand for both established and new dwellings.
“Regardless, the normalisation of CCCI growth will help provide some certainty for builders, insurance companies and homeowners alike.”