bricks featured
Material and labour shortages are fuelling construction costs. Image – Canva.
  • Construction costs rose by 11% during the year to September
  • This higher than the 10% recorded in the year to June 2022
  • Highest since September 2000 quarter, when the GST was introduced

National residential construction costs increased at a record rate during the year to September 2022, the highest annual growth rate since the GST was introduced.

CoreLogic’s Cordell Construction Cost Index (CCCI) found for Q3 2022 that residential construction costs rose by 11% during the year to September, higher than the 10% to June 2022. The quarterly figure of 4.7% is also far higher than the previous quarterly figure of 2.4%.

This figure is also far higher than the 3.8% surge recorded last year during the three months to September 2021, when lockdowns were having a significant impact on domestic supply chains.

John Bennett, CoreLogic Construction Cost Estimation Manager, said Cordell’s costings team continue to see costs rising, especially across the timber and metal materials market, 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.”

John Bennett, CoreLogic

Mr Bennett said that while some suppliers have seen a stabilisation in sea freight prices, raw materials, labour and fuel are still increasing, placing the upward 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 data showed the quarterly index change ranged from 3.3% in Western Australia and 3.8% in South Australia to 4% in New South Wales, 5.8% in Queensland and 5.6% in Victoria.

The rise is the largest on CoreLogic’s record – with the exception of the September 2000 quarter which was impacted by the introduction of the GST by the Howard government.

Sector facing additional challenges

Mr Bennett noted that the industry is facing a range of macroeconomic challenges on top of material price rises, such as rising fuel, electricity and freight costs, significantly impacting the bottom line over the past 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.”

Tim Lawless, CoreLogic Research Director, said that while the rising cost construction is not new – after all, inflation naturally occurs over time – the persistent rise would continue to have a major 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.

Tim Lawless, CoreLogic

tim lawless
Tim Lawless. Image – CoreLogic.

“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 noted that ongoing supply issues and labour shortages mean it is likely conditions in the construction sector will remain challenging for some time, with no reprieve 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.”

The Cordell’s data ream is typically used by businesses to make decisions, estimate rebuilds, insurance quotes and assist with price risk assessments.

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