Cost pressures in Australia’s detached house construction sector eased further during the June quarter, new data shows.
Real-estate information services firm Cordell has released the latest version of its Construction Cost Index Report, which tracks the cost of constructing a new home.
According to the report, house construction costs increased by only 0.7 percent in the June quarter.
This represents the lowset annual rate of growth since the September quarter of 2022 and is well below the 1.2 percent average price growth recorded over the past decade.
The data indicates that cost pressures have slowed since the 4.7 percent peak in the September quarter of 2022.
Still, it highlights the extent of cost pressures which have been evident over the past two years.
Across the year to June, the data indicates that housing construction costs surged by 8.4 percent.
This followed a whopping 11.9 percent surge which occurred in 2021/22 – the largest annual rise in the index on record with the exception of the introduction of the GST in 2000.
CoreLogic Construction Cost Estimation Manager John Bennett said the slowdown in cost growth was a welcome reprieve for the industry.
Bennett says cost pressures will likely ease further as home building activity slows.
“The latest index figures will bring some comfort and reassurance to the beleaguered building and construction industry as we’ve seen two consecutive quarters of growth more in line with long-term averages,” Bennett said.
“The CoreLogic costings team is recording some volatility and a large amount of variation across material types, but overall there’s a softening and stabilisation within products such as metal and timber prices.”
“There’s been a significant drop off in dwelling approvals in the year to April, which will flow through to prices. As the level of residential construction work reduces pressure on material costs and labour supply is likely to reduce further.”
Despite this, Bennett says that some pressures remain as the industry is still facing wages pressure amid tight labour market conditions.
That said, he expects overall wage pressures to unwind over the near-term future with the RBA forecasting a peak unemployment rate of around 4.5 percent in 2024.
CoreLogic Head of Research Eliza Owen noted that whilst construction cost growth has slowed, momentum in the market for established house prices has shifted toward recovery as CoreLogic’s national Home Value Index has recorded four consecutive months of increase.
“Despite high inflation and 12 interest rate hikes in 14 months, an imbalance between supply and demand has put a floor under prices across the country,” Owen said.
“Unprecedented increases in rent, persistently low vacancy rates and record levels of net overseas migration is also continuing to support housing demand.
“Net overseas migration was forecast to reach 400,000 people this financial year just past, and stay elevated for the foreseeable future, which is expected to create ongoing demand for Australian housing and place renewed pressure on demand for new dwellings down the track.”
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