Australia’s construction cost inflation pressures have continued to rise at record levels, according to new data.
According to CoreLogic’s Cordell Construction Cost Index (CCCI) for Q3 2022, national residential construction costs climbed at a record pace in the year to September 2022, the greatest annual growth rate since the introduction of the GST (10.2 per cent in the year to March 2001).
The national CCCI reported that residential building expenses climbed by 11 per cent in the year to September, topping the 10 per cent annual growth recorded in the year ending June 2022. The quarterly number of 4.7 per cent was higher than the preceding quarterly figure of 2.4 per cent.
The most recent quarter’s result was also higher than the 3.8 per cent increase reported in the three months to September 2021, when lockdowns had a greater influence on domestic supply chains.
The quarterly index change varied from 3.3 per cent in Western Australia to 3.8 per cent in South Australia, and from 4 per cent in New South Wales to 5.8 per cent in Queensland and 5.6 per cent in Victoria.
Construction expenses increased the most in the September quarter on record, excluding the September 2000 quarter, which was influenced by the GST. Victoria had the highest annual growth rate of any state, with residential building expenses rising by 12.3 per cent in the year to September 2022.
CoreLogic Construction Cost Estimation Manager John Bennett stated that the Cordell costings team was still seeing escalating costs, particularly in timber and metal components, which was harming 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.”
While some suppliers have seen a stabilisation in sea freight prices, Bennett stated that rising raw material, labour, and fuel costs continue to put upward pressure on residential building 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.
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.
New research from National Housing Finance and Investment Corporation (NHFIC), drawing on a model used by the San Francisco Federal Reserve, demonstrates that 83 per cent of all residential building material cost inflation in 2021-22 has been due to supply constraints.
In contrast, demand was the primary driver of cost increase during the early stages of the pandemic, accounting for 75 per cent of cost inflation in the fiscal year 2021.
“Recent data suggests that global supply chains pressures have moderated over the last six months, indicating the supply influences on construction costs are likely to ease,” the report noted.
“Anecdotal evidence from the construction industry suggests that labour costs have become of increasing concern more recently.”
CoreLogic Research Director Tim Lawless said while the rising cost of construction was not new, the persistent increase in construction costs would continue to have a big 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,” Lawless said.
“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 to 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.”
Lawless said 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.
According to figures issued by the Australian Bureau of Statistics (ABS), the total number of homes permitted increased by 28.1 per cent in seasonally adjusted terms in August, following an 18.2 per cent fall in July.
Approvals for the private sector dwellings excluding housed rose 99.1 per cent on the back of strong apartment approvals.
Meanwhile, the value of new loan commitments for housing fell 3.4 per cent to $27.4 billion in August 2022 (seasonally adjusted), after a fall of 8.5 per cent in July, according to the ABS.