Prices and costs in Australia’s construction industry continued to rise during the September quarter, the latest data shows.

But the rate of price growth appears to be moderating as pressures on some materials have eased.

Released on Friday, the September quarter Producer Price Index report from the Australian Bureau of Statistics (ABS) provides a snapshot of output price movements across the civil, commercial and residential construction sector in Australia.

The report also provides data on price movements for material inputs specifically related to detached house construction.

According to the data:

  • Output prices for building construction overall rose by 2.7 percent in the September quarter and by 12.8 percent over the year to September. Whilst this represents the biggest year-on-year increase since data series began in 1996, the quarterly 2.7 percent rise was less than the 3.8 percent increase that was recorded in the June quarter.
  • Output prices for house construction rose by 4.2 percent over the quarter and 20.3 percent for the year to September on the back of higher freight costs; tight supply of timber, steel and insulation; and ongoing shortages of skilled trades. The biggest increases are seen in South Australia and Tasmania.
  • Output prices for other residential building construction (units, townhouses, apartments etc.) rose by 1.8 percent for the quarter and have risen by 8.4 percent over the past year on account of restricted trade supply; higher costs for imported materials and higher prices for steel, timber and concrete.
  • Output prices for non-residential building construction rose by 1.8 percent during the quarter are 9.2 percent higher compared with this time last year on account of higher freight costs; elevated prices for steel, reinforcement and concrete and tight competition for skilled trades across the construction and mining industries.
  • Output prices in heavy and civil engineering construction rose by 2.7 percent in the quarter and by 9.6 percent year-on-year on the back for higher costs for freight, diesel, skilled trades and increased costs for concrete and bitumen driven by high energy and manufacturing costs.

Pleasingly, however, the data shows that the rate at which building material costs are rising has eased.

Across the September quarter, the overall cost of materials which are used for detached house construction rose by 2.9 percent.

This is down from 4.3 percent in the June quarter and represents the slowest quarterly rate of growth since the June quarter in 2021..

Leading into this were slower rates of growth for steel, timber and ceramic products.

Having surged by almost 40 percent across 2021/22, the price of steel products grew by only 1.6 percent in the September quarter.

Likewise, timber/board/joinery and ceramic product prices rose by more modest rates of 2.75 percent and 2.02 percent in the latest quarter after having recorded increases of 28 percent and 15 percent over 2021/22.

This is despite quarterly prices surges in specific product categories such as timber windows (up 6.80 percent) and terracotta tiles (up 7.27 percent).

On the flip side, higher energy costs saw prices for cement, concrete and sand products rise at their fastest quarterly rate (5.76 percent) since the mining boom.

Meanwhile, surges of 9.65 percent for metal garage doors and 7.09 percent/8.61 percent/6.88 percent for ceramic, sheet metal and plastic sanitaryware drove solid quarterly price growth for other metal products and plumbing products of 3.5 percent each.

In other product categories, strong quarterly price growth was recorded for waterproofing materials (7.74 percent) and glass/mirrors (5.43 percent).

Meanwhile, a further report released on Friday suggests that pricing pressures may be moderating in trades and labour.

Published by Housing Industry Association, the latest HIA Trades report suggests that trade prices across residential construction increased by only 0.7 percent in the September quarter despite having risen by 10.4 percent over the past year.

The latest reports follow earlier data published by CoreLogic on October 7 which showed that costs associated with the construction of an average stand-alone house in Australia increased by 4.7 percent in the September quarter and by 11.1 percent over the year to September.

Whilst freight prices have stabilised, CoreLogic reported ongoing cost increases in materials, labour and fuel as well as waste disposal fees and fees for professional services.

Notwithstanding the slowdown in timber and steel costs outlined above, CoreLogic reported ongoing cost increases in both timber and metals that it said were affecting framing and reinforcing – with significant price volatility being observed in prefabricated framing.

Additional pricing pressures were emerging for products such as wall linings and doors.

Speaking of the ABS data released on Friday, Housing Industry Association Chief Economist Tim Reardon said the results were consistent with expectations.

Reardon says ongoing cost and pricing pressure remains notwithstanding that the peak of the material price increases has passed.

Going forward, he expects further price increases to be concentrated in energy intensive items such as cement, glass and aluminium.

As for the slowdown in steel and timber products, Reardon noted that prices for structural timber and reinforcing steel have in fact been slowing on a quarterly basis since the beginning of the year.

Speaking earlier this month about the CoreLogic data, meanwhile, CoreLogic Head of Research Tim Lawless said the persistent increases in costs are one of many challenges facing an industry which is running at full capacity.

Lawless says the impact will extend to homeowners and insurers (see below).

He says there is no easy solution and that challenges will persist for now.

“This is an industry facing tough workload pressures against a backdrop of low labour supply, material shortages, rising interest rates and inflationary pressures,” Lawless said.

“This new high in the cost of construction flows through to margins, unexpected costs for consumers and potentially lengthy delays to home-owners who are waiting on the sidelines – often in rental or short-term accommodation – for the completion or possibly the start of their project.

“We also forget the impact to existing home-owners and the insurance industry as they struggle to reassess existing policies in a timely manner to make sure they are adequately covered in the event they need to make a claim.”

“The backlog of construction approved during COVID is still being worked through and on top of that is the rebuild and repair work following this year’s major weather events, with more forecast this month. The demand and pressure for construction materials and trades is expected to continue.

“There’s no quick solution for providing additional materials and fuel costs remain elevated. All of these factors have an impact and are likely to push building costs higher for some time yet.”