Construction Costs Slow to Lowest Rate Since Pandemic

Construction Costs Slow to Lowest Rate Since Pandemic
Tradesmen can be seen working on the roof of a house under construction at a housing development located in the western Sydney suburb of Oran Park in Australia on Oct. 21, 2017. David Gray/Reuters
AAP
By AAP
Updated:

Rising construction costs have slowed for the first time in two years as a drop in new home builds eases demand for materials and labour.

The cost of building a home or renovating recorded its lowest average increase last month since September 2020, with potential knock-on effects for the housing market and inflation.

The national quarterly average growth rate eased to 0.7 percent in June, down from 0.9 percent in May, according to property data giant CoreLogic.

It follows a growth peak of 4.7 percent in September 2022, about which time a number of major home builders collapsed under the strain of rising material costs, labour shortages and other COVID-19 pandemic-related pressures.

While the change represents a significant deceleration, prices for a number of individual building materials remain volatile, according to CoreLogic’s Cordell Construction Cost Index (CCCI).

Overall, the national CCCI increased by 8.4 percent, down from 11.9 percent the previous year.

CoreLogic construction cost estimation manager John Bennett attributed the change in part to a significant drop-off in dwelling approvals in the year to April.

“The latest index figures will bring some comfort and reassurance to the beleaguered building and construction industry as we’ve seen two consecutive quarters of growth more in line with long-term averages,” he said.

CoreLogic head of research Eliza Owen said the change could have a knock-on effect on the Consumer Price Index.

“The cost of new owner occupier dwelling purchases comprises the largest weighting in the CPI ‘basket’, which means the ongoing reduction in the CCCI is good news, potentially signalling lower inflation numbers,” she said.

Annual growth in the cost of new dwelling purchases fell to 12.7 percent across the year to March 2023, from 20.7 percent for the year ending September 2022.

Relief might still be some way off for those looking to rent or buy, however, with demand still outpacing supply and expected to grow.

“Despite high inflation and 12 interest rate hikes in 14 months, an imbalance between supply and demand has put a floor under prices across the country,” Ms. Owen said.

“Unprecedented increases in rent, persistently low vacancy rates and record levels of net overseas migration is also continuing to support housing demand.”

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