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Australia’s construction costs continue to rise at record rates - featured image
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By Greg Hankinson
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Australia’s construction costs continue to rise at record rates

key takeaways

Key takeaways

CoreLogic's Cordell Construction Cost Index for Quarter 3 of 2022 showed national residential construction costs increased at a record rate in the year to September 2022, exceeding the 10% annual rise recorded over the 12 months ending June 2022.

Costs will continue to rise, especially across timber and metal materials, affecting framing and reinforcing. Wall linings have also shown a sharp increase, and doors have also seen a sharp increase in price.

The construction industry is facing significant additional challenges, including rising fuel, freight and electricity costs, a shortage of labour and more expensive overheads.

Construction costs in NSW increased by 4.0% over the September 2022 quarter, and Victoria's costs increased by 5.6%. Queensland's costs increased by 5.8% over the September quarter.

The cost of building a new home continues to soar!

CoreLogic’s Cordell Construction Cost Index (CCCI) for Quarter 3 of 2022 showed national residential construction costs increased at a record rate in the year to September 2022, the highest annual growth rate, excluding the period impacted by the introduction of the GST (10.2% over the year to March 2001).

In fact, 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.

Quarterly Change In Construction Costs V Cpi National 07 October

Costs will continue to rise

CoreLogic Construction Cost Estimation Manager, John Bennett, said they continue to see costs rising, especially across timber and metal materials, affecting framing and reinforcing.

He explained further:

"In particular, we are recording significant volatility in pre-fabricated framing.

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.

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, the increasing cost of raw materials, labour and fuel continue to place pressure on residential construction costs upwards."

He commented:

"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."

The construction industry is facing significant additional challenges

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."

He further commented:

“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.”

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

He further explained:

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

This new high in the cost of construction flows through to margins, unexpected costs for consumers and potentially lengthy delays to homeowners 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 on existing homeowners 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.

The 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 are expected to continue.

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."

Construction Cost

Key findings by state from Cordell's latest 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
  • 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 3%.
  • In Western Australia, construction costs rose 3% over the September 2022 quarter, the lowest quarterly growth rate of all states.
  • South Australia’s annual increase in construction costs was up 8% for the September quarter and 9.9% for the year.

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About Greg Hankinson Greg and his team have successfully built and renovated in excess of 500 homes throughout Melbourne and are showing no signs of slowing down anytime soon. Being a Gold member of the Housing Industry Association and National Kitchen and Bathrooms Association, Greg’s focus is on Continued Professional Development, not only for himself, but his team of industry experts.
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