
Residential construction costs grew 3.4 per cent over the 12 months to December 2024, but experts say cost escalation in 2025 could be even higher.
The 2024 increase is the largest annual increase in construction costs since the year to September 2023 (4.0 per cent), according to CoreLogic’s latest Cordell Construction Cost Index (CCCI).
The cost of construction is now 30.8 per cent higher since the onset of COVID.
After the quarterly change in construction costs eased to below 1.0 per cent per cent in 2023 and the first half of 2024, the quarterly pace of growth rose to be in line with the pre-COVID decade average of 1.0 per cent through the second half of 2024, shifting the annual trend higher.
CoreLogic Economist Kaytlin Ezzy said the re-acceleration of costs was largely driven by labour pressures, as well as increases in electrical and plumbing fixtures and fittings, landscaping products, kitchen joinery and specialised timber products.
“Looking forward, labour will likely continue to be a driving factor pushing construction costs up, with the annual pace of construction costs expected continue risings towards the pre-covid decade average of 4.0 per cent in 2025,” she said.
“It’s likely labour will continue to weigh heavily on construction costs in 2025. While still low, house approvals have trended upward though 2024, and, as interest rates come down, we could see demand for new builds increase.
“With the residential building sector already competing with the public infrastructure sector of labour, its likely labour shortages will continue to play a major role in construction cost increases moving forward.”
CoreLogic Construction Cost Estimation Manager John Bennett agreed, saying labour shortages will likely continue to be a major factor impacting building cost in the foreseeable future.
“There are not enough trades people to facilitate the required or desired workloads. Unfortunately training or bringing in new people to fill the gaps is not a quick fix. It takes time to upskill a trades person and building industry labour numbers have been declining for some years.”
Mr Bennet said cost movements in building materials were a mixed bag.
He said concrete blocks were one area with falls in the last quarter of 2024, down by 15 per cent on average, while plumbing PEX fittings and pipework were up by 5 per cent.
However, 2025 is expected to bring a measure of stability to material prices.
“At this stage, we’re not expecting to see to many major increases or decreases in material costs in 2025,” he said.
“A lot of products are currently seeing prices hold steady, which is significant in itself, with labour continuing to be the main driver of construction cost increases.
“Looking ahead, approvals, although increasing, remain low, with less new work moving through the construction pipeline, resulting in not enough housing to meet demand.
“Slow sales due to a decline in building activity may lead to a sale environment on some items.
“Any or all metal/steel and timber products could be one to watch, imported products – fixtures, fittings and appliances may also see declines.”