Builders of detached house projects across Australia are being forced to slash prices in order to attract consumers as higher interest rates and higher construction costs impact purchaser demand, new data shows.

And material input prices have fallen for the first time in thirteen years.

But moderate cost pressures remain in mutli-residential construction and commercial/non-residential construction.

The Australian Bureau of Statistics has released the March quarter edition of its Producer Price Index Report.

In terms of construction, the report provides a quarterly update on output pricing movements across the civil, commercial and residential sector along with input price movements specifically in respect of detached house building.

Overall, the report indicates that output prices in building construction rose by 0.2 percent during the quarter and are up by 2.9 percent over the past twelve months.

Meanwhile, output prices for heavy and civil engineering construction rose by only 0.3 percent for the quarter and 1.6 percent over the past twelve months.

Within building construction, however, the overall number masks significant divergence among differing building typologies.

In detached house construction, output prices fell by 0.7 percent in the March quarter.

Coming on top of an earlier 0.3 percent contraction in the December quarter, output prices in this subsector have fallen by 1.0 percent over the past six months.

This represents the first time that prices have contracted for two consecutive quarters since 2019.

Worst impacted are Victoria and New South Wales.

In Victoria, prices fell by 1.9 percent during the March quarter and have fallen by 2.8 percent over the past six months.

In New South Wales prices, fell by 0.9 percent during the quarter and are down by 1.8 percent over the past six months.

Meanwhile, output prices in multi-residential building construction (units, townhouses, apartments etc.) and non-residential building construction (commercial and public buildings) increased by 0.6 percent and 0.8 percent during the March quarter.

Over the past year, prices in these sectors have risen by 3.8 percent and 3.9 percent respectively.

The latest data comes as conditions in detached house construction remain subdued.

Since undergoing a modest recovery in the first half of last year, detached house approvals have eased over the past nine months (albeit with a slight upturn over the past few months).

This has occurred even as the number of multi-unit projects has picked up on account of developer interest in build-to-rent projects.

Detached house conditions have been particularly soft in New South Wales and Victoria, where housing starts remain well below decade averages.

In its report, the ABS said that the fall in house construction prices reflects builder/developer discounting in light of aforementioned conditions.

“House construction prices fell for the second consecutive quarter, driven by decreases in Victoria, New South Wales and the Australian Capital Territory,” the ABS said.

“Affordability concerns caused by high interest rates, and elevated construction costs have negatively affected demand for house construction.

“To attract customers, builders have increased bonus offers, reducing prices.”

Turning to multi-residential and commercial/non-residential projects, the ABS says that output pricing pressures are being driven by:

• demand associated with a strong flow of build-to-rent projects in New South Wales and government-led school, education, health and infrastructure projects
• competing demand for skilled workers as well as for materials such as concrete from infrastructure projects; and
• rising prices for concrete and electrical services which have occurred on account of strong demand, contractor insolvencies and higher material and labour costs.

Material prices fall

Meanwhile, the report indicates that input prices for detached house construction contracted by 0.1 percent during the March quarter.

This represents the first quarterly price contraction since the March quarter of 2012.

It reflects falling prices for timber, steel and electronic products.

It occurred as suppliers have been forced to offer discounts in order to secure business in light of the subdued residential construction conditions referred to above.

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