Home building costs jumped a record 10% in Australia during the year to June 2022, marking the biggest annual rise in residential construction costs since 2001.
CoreLogic’s Cordell Construction Cost Index found the latest data represented the highest annual growth rate since the introduction of the GST, when there was a 10.2% rise over the year to March 2001.
Home building costs rose 2.4% in the second quarter of this year, repeating Q1’s growth rate.
CoreLogic Construction Cost Estimation Manager John Bennett said the cost of metal, structural steel, reinforcing, fixings and fencing were under pressure, adding to rising prices across timber products.
He said the surge in construction costs remained broad based, with the quarterly index change ranging from 2.2% in South Australia to 2.5% in NSW and Victoria.
In Queensland and Western Australia, construction costs increased 2.3% over the three months to June, slightly lower than the national growth rate.
“Suppliers are frequently mentioning the impact of rising fuel, freight and electricity costs on their bottom line and these are significant additional challenges being faced by the industry,” Bennett said.
“It is important to note these factors only add to other pressures that have impacted the residential construction industry for 18 months now, such as labour availability and overheads.
“A shortage of labour and materials means a delay in completion times, which leaves builders vulnerable to market changes and holding costs.”
CoreLogic Research Director Tim Lawless said the double-digit annual increase in construction costs had been expected with the impact playing out across several 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 homeowners waiting for their projects to finish or even start in many cases.
“It’s also impacting the insurance industry, as homeowners struggle to reassess existing policies to make sure they are adequately covered in the event they need to make a claim.”
Lawless said the short to medium-term outlook for the construction industry remained challenging with ongoing labour shortages and supply issues.
“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,” Lawless said.
“This all adds additional demand-side pressure for construction materials and trades.
“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.”