Home Property Australia Construction costs set to peak this year as Australia records fourth highest cost of labour in the world

Construction costs set to peak this year as Australia records fourth highest cost of labour in the world

  • July 12, 2022

Construction costs have spiked in recent months, driven by inflation, economic stimulus, and supply chain challenges, with the country experiencing the fourth highest labour cost of any global region. However, price escalations should peak this year and moderate in 2023.

According to Turner & Townsend, price increases were recorded across all key material and staffing indicators between Q1 2021 and Q1 2022.

The sharpest increase was structural steel which increased by 39.5 per cent per tonne followed by plasterboard which increased $35.3 per sqm.

Likewise, according to CoreLogic’s Cordell Construction Cost Index (CCCI) for Q2 2022, national residential construction costs grew 10 per cent in the year to June 2022, the largest annual growth rate on record outside of the implementation of the GST.

The CCCI quarterly indexed growth rate of 2.4 per cent is a repeat of the figures recorded in the first quarter of 2022, more than doubling Q4 2021 (1.1 per cent), but less than the 3.8 per cent surge recorded in the three months to September 2021, when lockdowns had a greater impact on domestic supply chains.

And it isn’t just material prices increasing, the International Construction Market Survey has shown Australia has become the world’s fourth most costly region for construction labour, with an average hourly wage of USD$75.5. Switzerland is the costliest (USD$118.1), followed by Austria (USD$77.7), and the United States (USD$77.1).

Perth, ranked 36 out of 88 global cities, has become Australia’s most expensive building market, with an average cost of $2,822 per sqm, followed by Sydney (42) at $2,699 per sqm, Melbourne (44) at $2,666 per sqm, Brisbane (46) at $2,620.7 per sqm, and Adelaide (50) at $2,454.4 per sqm.

Anooj Oodit, Managing Director ANZ and Asia for Turner & Townsend said all markets in Australia are expected to get “warmer” over the next 12 months.

“Brisbane and Perth markets are currently hot, while Sydney, Melbourne and Adelaide are warm,” he said. “Skills shortages, construction cost inflation and long lead times are some of the biggest challenges facing Australia’s construction market.

“Residential construction is strong across the country, resulting in local supply chain constraints and bottlenecks in most markets. Recent wet weather events in Brisbane and Northern New South Wales have placed additional pressure on labour shortages in these states.”


CBRE Research Director Kate Bailey noted that while increases in the cost of construction is putting pressure on Australia’s pipeline, most cost escalations have now been built into project planning and further price increases are expected to be modest.

“While supply chain delays will persist, improvements are expected in early 2023 with cost increases from next year onwards to be largely driven by higher wage costs,” she said.

According to CoreLogic Research Director Tim Lawless, the double-digit yearly increase in building prices was predicted, with the impact felt across numerous states this year.

“Construction cost growth is an additional concern to an industry already under immense workload pressures as well as economic conditions such as rising interest rates and inflationary pressures,” Lawless said.

“Construction costs have increased more than 25% over the past five years, which has a knock on effect to builders’ margins, budget blowouts for customers not on fixed price contracts and home owners waiting for their projects to finish or even start in many cases. It’s also impacting the insurance industry, as home owners struggle to reassess existing policies to make sure they are adequately covered in the event they need to make a claim.”

Lawless stated that the construction industry’s short to medium-term outlook remained problematic due to persistent labour shortages and supply concerns.

“The pipeline of construction approved during COVID is still being worked through and there’s been a number of major weather events as recently as this month, which require significant rebuild and repair work. This all adds additional demand-side pressure for construction materials and trades,” he said.

“There’s also no reprieve on the supply side either with a lack of materials, elevated fuel costs and broader inflationary pressures. All of these factors have an impact and are likely to push building costs higher for some time yet.”