Costs associated with construction of new housing in Australia are growing at their slowest rate in more than two decades, new data shows.

Real-estate services firm CoreLogic has released the June quarter edition of its Cordell Construction Cost Index (CCCI) report.

The index provides an estimate of quarterly movements in the cost of building an average Australian dwelling.

It includes the construction component of new home delivery only (materials, labour, plant and equipment and subcontractor services).

Costs associated with land, developer margins or taxes and charges are excluded.

In its report, Cordell says that the rate of increase in its CCCI eased from 0.8 percent in the March quarter to just 0.5 percent in the June quarter.

At this rate, quarterly cost escalation is tracking 50 percent below the pre-COVID decade average of 1.0 percent.

Across 2023/24, the CCCI increased by only 2.6 percent.

This represents the lowest annual rate of cost growth since that recorded in the twelve months to March 2002 and is well below the pre-COVID annual average of 4.0 percent.

The low rate of cost growth was consistent across the nation.

Across the five largest states, Queensland recorded the lowest quarterly rate of cost growth (0.3 percent) whilst New South Wales and Victoria recorded the highest quarterly rates of growth (0.6 percent).

However, the CCCI remains almost 30 percent higher compared with pre-COVID levels.

CoreLogic Construction Cost Estimation Manager John Bennett said the lower rates of overall cost growth are being driven by reduced pricing volatility among materials.

Indeed, there has even been a reduction in prices for some core building products. These include timber and metal products which are used for framing, trusses, floors, cladding and roofing.

However, overall costs are still growing (albeit slowly) on account of cost increases in other areas such as labour.

The latest data comes as Australia’s construction industry is enduring a cyclical downturn in new home building activity.

This follows an unprecedented boom in detached house construction which occurred on the back of previously low interest rates and COVID stimulus measures.

The downturn has been driven by tighter monetary policy which has seen official interest rates increase from 0.1 percent in April 2022 to 4.35 percent today.

This has seen building approvals fall to decade lows across much of 2023 and early 2024 – albeit with an increase in approvals being recorded in May.

It is this decline in building activity – along with an easing in supply chain constraints – that is driving the easing in cost pressures.

CoreLogic Research Director Tim Lawless said that the easing in pricing pressures is welcome in terms of returning builder margins to sustainable levels and not adding further pressure on housing and rental affordability constraints.

But he warned that the near-term outlook in new home construction remains sluggish.

“Even with May’s uptick in building approvals, we’re still navigating the bottom of the approvals cycle,” Lawless said.

“Any recovery remains tentative and unconvincing given thousands of approved projects aren’t coming to fruition for a variety of reasons and building activity remains sluggish due to a substantial backlog of projects that are still progressing through the pipeline.”