Home Property Australia Labour the biggest challenge to construction costs: Slattery

Labour the biggest challenge to construction costs: Slattery

  • December 06, 2023
  • by Property Australia
Construction costs are predicted to vary in each city, yet they all point in the same direction

Slattery anticipates an annual growth rate ranging from 4-6 per cent during the first quarter of 2024 in Australia’s major markets, according to a new report.

The report from Slattery notes that variations are likely in smaller and more remote cities and anticipates the market returning to the traditional long-term average of 3-4 per cent per year throughout 2024.

“With materials prices attaining equilibrium, the spotlight remains on labour costs,” Sarah Slattery, Slattery CEO said.

“Understanding the nuanced dynamics of skilled shortages, rising wages and evolving contracting models in each market is vital for smart, strategic decision-making.”

The report said that with the cost of labour accounting for around 50 per cent of most construction projects, skills shortages will continue to cause headaches.

In NSW, the report noted a tight labour market, mixed with cuts to infrastructure spending and recent housing-related government announcements will be key influences on the market.

Visibility into the pipeline becomes unclear beyond the next six months, the report noted, and a decrease in workload may not necessarily alleviate cost escalation.

Although Slattery projects an overall cost increase of 4-5 per cent in 2024, it anticipates a more pronounced rise, nearing six per cent in the residential sector and reaching seven per cent in the infrastructure domain.

It is a similar story in Victoria, where infrastructure cuts, a residential ramp up and an equipment cost crunch are likely to be influential. 

Slattery has projected cost escalation returning to the traditional long-term average of 3-4 per cent per annum in 202 in Victoria.

For Queensland, cost escalation is expected to rise with major projects on the horizon regarding major renewable projects, hospital projects and the Olympics.

Slattery expects costs escalation to run at an average of 6-7 per cent per annum over the course of 2024.

In South Australia, a skills crunch, among other factors, is expected to push cost escalation to sit at 4.5 per cent per annum for 2024 but could increase to five per cent on the back of infrastructure spend.

Western Australia tells a similar story, with a skills shortage, long lead times and insolvencies expected to lead to costs increasing around 4.5-5.5 per cent per annum in 2024.

The report forecast the highest cost escalation for Tasmania at nearly eight per cent due to a labour squeeze, a focus on residential construction and infrastructure spending.