CoreLogic’s Cordell Construction Cost Index (CCCI) ended the year at a new high, climbing 11.9% over the 2022 calendar year, the largest annual increase on record, excluding the period impacted by the introduction of the GST.
The figure was significantly higher than the 7.3% figure recorded over the 12 months to December 2021, however the quarterly growth rate of 1.9% shows a dramatic easing in the index following September’s quarterly increase of 4.7%.
CoreLogic Construction Cost Estimation Manager, John Bennett said the most recent quarterly figures reflected the post-COVID operating period, which was being hampered by rising rates and high inflation.
“The industry has been through a very challenging 18 months to two years, with extreme periods of volatility in pricing due to restricted domestic supply chains, material and labour shortages,” he said.
“Although the annual CCCI remains high, on a quarterly basis there’s been an easing in residential construction costs. This reflects a pull back from consumers, builders and will eventually flow through to suppliers, as projects are delayed or put on hold in the current economic environment.”
Mr Bennett said it was the lowest quarterly increase in the index since December 2021, and although there had been an improvement when compared to the runaway September figures, the quarterly rate of growth remained higher than the five-year average (1.4%).
“The biggest contributors currently are volatile timber prices, with fluctuations in structural timber costs and general increases to timber products. Prices for metal products such as gutters, lintels and fixings, used for roofing and structural purposes continue to increase, and concrete values also remain unstable,” he said.
“Petrol rises are affecting cartage and delivery costs, notably concrete, however larger items such as rainwater tanks are also affected. Gravel, aggregates and fill have increased, possibly affected by the rise in petrol prices, while increasing costs for appliances and fittings have also been noticed.”
The quarterly index change ranged from a low of 1.7% in South Australia and 1.8% in New South Wales to a high of 2.0% in Western Australia and Queensland.
Mr Bennett doesn’t expect 2023 costs to continue to grow at the same rapid pace as they have done in the past 18 months as consumers, builders and suppliers proceed with caution against a backdrop of rising rates and inflationary pressures.
CoreLogic Research Director Tim Lawless noted dwelling approval figures had dropped by 41% since moving though historic highs in March 2021, and despite a substantial pipeline of residential construction work still to be completed, the drop off in consents will have helped reduce some of the pressure on the industry.
Although there remains a shortage of labour, the opening of borders and arrival of skilled workers is also expected to eventually flow through to the construction industry.
“Although a large number of homes remain under construction, the dwindling number of approved homes in the construction pipeline should help to alleviate construction costs down the track,” he said.
“Anecdotally, as skilled migration continues to ramp up, we should see the costs associated with some trades and labour slow further.”
Mr Lawless added the housing component of the Consumer Price Index (CPI), which includes both the costs of building a new home and rents, has been one of the main contributors to high inflation over the past few years.
“A reduction in growth associated with the cost of building a new home should gradually flow through to less inflationary pressures from the housing sector through the year,” he said.
CoreLogic researches, tracks and reports on materials and labour costs which flows through to its Cordell construction solutions to help businesses make better decisions, estimate rebuild and insurance quotes easily and, ultimately, price risk effectively.
The CCCI report is a quarterly index measurement that tracks the rate of change of residential construction costs. The modelling covers ‘typical’ new residential builds most common among newly built Australian homes.