Construction prices throughout Australia are spiralling out of control as shortages of products and skilled workers are driving upward pressure on costs for materials, trades and labour, the latest data shows.

In its Producer Price Index report covering the December quarter, the Australian Bureau of Statistics has reported that output prices have risen across all segments of the construction industry.

In relation to building, prices rose by 2.9 percent over the December quarter and by 7.8 percent across 2021.

This was driven by surging costs in detached housing amid record levels of demand in this sector.

All up, detached house construction prices rose by 3.9 percent during the quarter and by 11.1 percent during the year.

Output prices have also risen for multi-residential construction (2.2 percent for the quarter/5.6 percent for the year) and non-residential building construction (2.3 percent/6.4 percent for the quarter/year).

Meanwhile, prices for heavy industry and civil construction rose by 1.4 percent over the quarter and by 5.6 percent over the year.

Around Australia, construction cost pressures have intensified as record levels of activity in detached home building and a massive pipeline of road and rail projects have driven demand at the same time as COVID has created disruptions to supply.

This has led to significant shortages of products and labour.

On products, the ABS breakdown of material price movements for detached house construction (no breakdown is given for other sectors) shows that:

  • Overall prices of steel products increased by 5.74 percent in the December quarter and by 30.78 percent over 2021. Prices for reinforcing steel rose by 43 percent whilst those for steel beams and sections rose by 24.81 percent.
  • Prices for timber products rose by 6.05 percent for the quarter and by 18.5 percent for the year. Structural timber prices surged by 39.7 percent for the year whilst prices for plywood, timber windows and timber doors also rose strongly.
  • Across the whole year, prices for copper pipes and fittings and plastic pipes and fittings rose by 24.12 percent and 24.67 percent respectively.
  • Prices for other metal products (aluminium windows and doors/metal garage doors/metal roofing and plumbing etc.) rose by 4.09 percent for the quarter and 13.16 percent for the year.
  • Prices also rose strongly for insulation (10.6 percent for the year), mirrors and glass (10.06 percent), builders’ hardware (9.36 percent) paint and coatings (7.7 percent) and ceramic products (7.15 percent).

On trades, meanwhile, the most recent HIA Trades report (covering the September quarter) indicates that prices of trades such as bricklaying, other trades, general building, landscaping and carpentry have shown year on year increases of between nine and sixteen percent.

Thus far, ABS data (to the September quarter) indicates that broader salary/wage growth across the construction sector remains in check at 2.6 percent year-on-year.

With job vacancy data showing that workers across the sector are becoming extremely difficult to find, however, salary/wage pressures will likely intensify going forward.

The latest data comes amid concerns over the impact of supply/cost pressures on the construction industry.

In the residential sector, there are concerns that many builders may experience financial difficulty as cost pressures erode margins and may cause losses to be made on some jobs.

This is particularly the case for builders on fixed-price contracts who are unable to pass on cost increases to their clients unless clients agree to amend the contract price.

The pressures are also leading to concern about likely cost overruns on the massive volume of taxpayer funded transport infrastructure projects which are currently underway.