House building costs in Australia jumped 7.3% during 2021, the highest annual growth rate since March 2005, according to CoreLogic.
Rising building costs follows a 22% rise in home values nationally last year, with higher construction costs likely to add to affordability challenges already at play across the established housing market.
“With such a large rise in construction costs over the year, we could see this translating into more expensive new homes and bigger renovation costs, ultimately placing additional upwards pressure on inflation,” CoreLogic Research Director Tim Lawless said.
National house construction costs rose just 1.1% in the fourth quarter of 2021, down from a 3.8% surge during the third quarter.
Cost increases were still being driven primarily by timber, other segments of the market also remain volatile, with increasing pressure on metal costs.
Lawless said the smaller rise over the quarter might have reflected some rebalancing in the index after Q3’s jump, however the data company is expecting growth in residential construction costs to remain above average over the coming quarter as supply chain disruptions persist.
“There is a significant amount of residential construction work in the pipeline that has been approved but not yet completed,” Lawless said.
“With some materials such as timber and metal products reportedly remaining in short supply, there is the possibility some residential projects will be delayed or run over budget.”
CoreLogic Head of Insurance Solutions Matthew Walker said rising construction costs impacted homeowners and property investors, as well as home renovators, builders and businesses.
“In these times of rapidly rising home and construction costs, under insurance can quickly become a real threat to what is a most valuable asset,” Walker said.
“It’s important that homeowners keep track of their sum insured and annually check that it is sufficient should the worst occur by using their insurer’s rebuild calculator or giving them a call.”
The rise in construction costs comes as new housing approvals rose 3.6% in seasonally adjusted terms across Australia in November last year, fuelled by a surge in new units across the country.
There were 16,448 new dwelling approvals made up of 10,892 detached house approvals and 5,315 non-house approvals in November, according to the Australian Bureau of Statistics (ABS).