Cost pressures in new home construction are back on the rise, new data shows.

Real estate services firm CoreLogic has released the latest quarterly edition of its Cordell Construction Cost Index Report.

The report tracks the rate of change in the costs to construct a typical standard three-bedroom, two-bathroom Australian home. It takes into account labour, material, plant hire and subcontract services.

The report shows that the rate of cost escalation has reaccelerated.

Having previously been consistently below one percent across 2023 and the first half of 2024 (see chart), quarterly housing construction cost escalation returned to 1.0 percent in both the September quarter and the December quarter.

At this level, escalation rates are now back to levels that were considered to be normal prior to COVID.

Furthermore, housing construction cost growth is now running at levels which are above the general rate of inflation (see chart).

Over the whole of calendar 2024, housing construction costs increased by 3.4 percent.

Since the beginning of COVID, the report indicates that housing construction costs have increased by 30.8 percent.

In its report, CoreLogic noted that tight labour supply continues to be a driver of cost pressures.

As for materials, it notes that there were quarterly increases and decreases across various categories.

Across major states, Queensland recorded the largest quarterly increase (1.2 percent).

This was followed by New South Wales, Victoria and Western Australia (1.0 percent each) while South Australia recorded the smallest increase of 0.9 percent.

CoreLogic Economist Kaytlin Ezzy said the latest data represents another difficulty for an industry that is already contending with several challenges.

These include tight profit margins and a looming contraction in the pipeline of work amid decade low numbers of dwelling commencements.

Whilst building approval numbers are now recovering, Ezzy notes that approvals over the twelve months to November remained below decade averages to the tune of 7.1 percent.

“Residential construction companies continue to face profitability challenges with the CCCI up 30.8% since the onset of COVID,” Ezzy said.

“Outside of compressed margins and continued labour challenges, the construction industry is also facing a looming shrinkage in the construction pipeline.

“These factors combined have contributed to an increasing number of liquidations, with 2,832 construction companies becoming insolvent in the 2023-2024 Financial Year, representing the greatest proportion of company collapses.”

 

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