After more than two years of unabated increases in the price to build a new home or renovate, the pressure on construction costs has come off the boil, despite lingering volatility among individual material types.
CoreLogic’s Cordell Construction Cost Index (CCCI), which tracks the cost to build a typical new home, returned a quarterly growth rate of 0.7% for the June quarter, the lowest rate since September 2020 and well below the 1.2% decade average.
The quarterly growth rate has eased from Q1’s 0.9% and is a significant deceleration compared to the index growth peak of 4.7%, recorded in September 2022.
On an annual basis, the national CCCI increased by 8.4%. CoreLogic Construction Cost Estimation Manager John Bennett said while the national annual growth rate remained high, it was an improvement on last year’s 11.9%, which was the largest annual index rise on record, excluding the impact from the introduction of the GST in 2000.
“While the annual growth figure remains high it’s the lowest level it’s been since the 12 months to December 2021,” Mr Bennett said.
“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.”
Despite the positive trend, Mr Bennett warned there was ongoing volatility within different product types, however the significant increases of the past year had subsided.
“The CoreLogic costings team is recording some volatility and a large amount of variation across material types, but overall there’s a softening and stabilisation within products such as metal and timber prices.”
“There’s been a significant drop off in dwelling approvals in the year to April, which will flow through to prices. As the level of residential construction work reduces pressure on material costs and labour supply is likely to reduce further.”
Queensland had the highest quarterly and annual growth changes of 0.7% and 9.9% respectively, while Western Australia recorded the lowest increase at 0.5% and an annual figure of 6.9%.
Mr Bennett said the industry is still facing wages pressure amid tight labour market conditions.
Australia’s unemployment rate averaged around 3.5% for the past year. Wages pressure is also expected to unwind slightly in future, with the RBA forecasting a peak unemployment rate of around 4.5% in 2024.
CoreLogic Head of Research Eliza Owen said the slowdown in residential construction costs can also be seen in quarterly CPI outcomes, with annual growth in the cost of new dwelling purchases falling from 20.7% over the year ending September 2022 to 12.7% over the year to March 2023.
“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.
Ms Owen noted that as the construction industry had slowed, the established housing market had shifted into recovery mode this year, with CoreLogic’s national Home Value Index (HVI) recording four consecutive monthly increases.
“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,” she said.
“Unprecedented increases in rent, persistently low vacancy rates and record levels of net overseas migration is also continuing to support housing demand.
“Net overseas migration was forecast to reach 400,000 people this financial year just past, and stay elevated for the foreseeable future, which is expected to create ongoing demand for Australian housing and place renewed pressure on demand for new dwellings down the track.”
CoreLogic researches 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.
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.