Residential construction costs stabilise after years of accelerated growth

Report shows costs increase at the slowest annual pace in over two decades

Residential construction costs stabilise after years of accelerated growth

Residential construction costs in Australia have stabilised, growing at the slowest annual rate in 22 years, according to CoreLogic’s Cordell Construction Cost Index (CCCI).

The Q2 2024 national CCCI, which tracks the cost of building a typical new dwelling, recorded a 0.5% rise, down from the 0.8% increase in the previous quarter.

For financial year 2024, annual costs increased by 2.6%, the smallest annual rise since March 2002 (2.3%) and well below the pre-COVID decade average of 4%.

CoreLogic research director Tim Lawless (pictured above) noted that while quarterly growth in residential construction costs is 50 basis points below the pre-COVID decade average of 1.0%, price levels remain high.

“The growth in costs has finally returned within normal margins, but the price of construction is not falling,” he said. “Building or renovating is almost 30% more expensive now than pre-COVID after an extended period of escalating costs.”

He added that the recent easing in construction cost growth, coupled with higher established housing prices, may help improve builder profit margins and provide more confidence in pricing for new builds and renovations.

State-by-state, the quarterly change in the Cordell Construction Cost Index ranged from 0.3% in Queensland to 0.6% in New South Wales and Victoria.

John Bennett, construction cost estimation manager at CoreLogic, attributed the overall de-escalation in construction cost increases to reduced pricing volatility among materials. He pointed out that prices for key residential construction materials, such as timbers and metal products, have decreased. However, labour costs remain high and continue to significantly impact residential project costs.

Nationally, the Consumer Price Index (CPI) rose by 1% in the March quarter, compared to a 0.8% rise in residential construction costs. With construction costs rising by 0.5% in the June quarter, Lawless anticipates this level of growth will be well below CPI when the index is released later this month.

“Residential building costs are a key input for the housing component of the consumer price index,” Lawless said. “Although rents remain a pain point for housing inflation, the slowdown in residential construction costs is a positive outcome for inflationary pressures.”

Lawless also commented on May’s 5.5% increase in building approvals, which exceeded expectations. However, he cautioned against viewing this as a turning point in construction activity, as approvals remain at decade lows since early 2023.

“Even with May’s uptick in building approvals, we’re still navigating the bottom of the approvals cycle,” he said. “Any recovery remains tentative given thousands of approved projects aren’t coming to fruition for various reasons, and building activity remains sluggish due to a substantial backlog of projects still progressing through the pipeline.”

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