Building cost hikes no deterrent to buyers

Rising building costs nationally have done nothing to stem demand for newly constructed homes, with generous stimulus packages surpassing any increase in the price of building materials.

Dwelling approvals rose 15.4 per cent in September, according to figures released by the Australian Bureau of Statistics this week. 

This was despite house building costs increasing marginally over the September quarter, albeit with the rate of growth sharply lower than the previous quarter.

Dwelling approvals had endured 1.6 per cent decline over August but the imminent opening up of state borders and economies has turned things around, all ahead of a Melbourne Cup interest rate cut that will only stimulate the property market further.

More ABS data released this week showed that house building costs nationally increased by 0.2% over the September quarter – well down on the 1.2% reported over the previous June quarter.

Adelaide recorded the highest capital city increase in house building costs over the quarter, rising by 0.8% followed by Sydney and Melbourne up 0.2%, and Brisbane and Perth up 0.1%.

Over the year ending with the September quarter, Sydney reported the highest increase in building costs, rising sharply by 2.6%, followed by Adelaide 1.7%, Brisbane 1.5%, and Melbourne and Perth each up 1.2% over the year.

Current ABS data also reveals that Sydney and Melbourne reported the highest capital city average house building costs per building approval over August at $356,723 and $356,421 respectively.

Chief economist at property technology company Archistar, Andrew Wilson, said changes in costs will have minimal impact on builders’ profitability or first home buyer activity.

“Record increases in home building activity are being driven by specific government stimulus packages – HomeBuilder and First Home Buyer Deposit Scheme – and record low interest rates and a reviving, supported economy,” Dr Wilson said.

“Increased turnover will assist builders in absorbing higher materials and labour costs albeit likely only marginal.”

COVID-free states lead way

General price rises for building materials nationally included ceramic products (+2.2%), steel products (+1.5%) and other metal products (+0.4%).

Each capital city was impacted by different price components, including:

• Melbourne (+0.2%), due to timber doors and other electrical equipment
• Sydney (+0.2%), due to ceramic tiles and steel beams and sections
• Adelaide (+0.8%), due to cupboards and built in furniture and metal roofing and gutters
• Brisbane (+0.1%), due to terracotta tiles and plaster products
• Perth (+0.1%), due to insulation and timber doors
• Hobart showed no overall changes.

Michael Bartier, Executive General Manager BGC Housing Group, said price increases across residential construction in WA since January had been largely corrective.

“They have primarily been driven by a realignment of unsustainably low trade labour rates as a result of the soft WA housing market since 2015, as opposed to opportunistic behaviour driven by stimulus,” he said.

“As such, First Home Buyers have not been negatively impacted, however, builder margins will be impacted short term until Q4 sales activity translates to construction activity.”

Mr Bartier said builders would look to innovate to alleviate any material cost hikes.

“So far we have seen minor increases across residential steel categories, including beams and lintels, however, we expect minimal flow through impact to consumers as we look to innovate and implement operational efficiencies to offset (any price rises),” he said.

He said residential construction will benefit from low median house price, sub 1 per cent rental vacancy rates, strong economic conditions and most significantly one of the world’s safest, cleanest and most isolated capital cities.

Western Australia led the way with building approvals, up 42.6 per cent, followed by South Australia, up 28.3 per cent, Queensland 19.3 per cent and Tasmania 18.8 per cent. Victoria's dwelling approvals rose by 12.4 per cent and New South Wales 4.6 per cent.

South Australia saw a higher spike in approvals for private sector houses than the rest of the country (19.9 per cent). The state is also outperforming the rest of the nation for jobs growth in the critical building and construction sector, with more than 2,700 local jobs created since July.

ABS data shows building and construction jobs – from plumbers, painters and engineers to carpenters, bricklayers and administrative roles – have grown 4% in SA this financial year – the only state or territory to record jobs growth in the sector.

SA Treasurer Rob Lucas said large infrastructure projects would drive more building activity.

“There’s an ongoing and steady pipeline of work for thousands of tradies from carpenters, plumbers, tilers and bricklayers to electricians, engineers and other suppliers," Mr Lucas said.

End result proving more costly

Among the ABS data that slipped under the media radar this week, was the revelation that buyers were continually paying more for their dwellings than they initially expected.

Almost half of new residential dwellings (44.9% of dwellings) cost more to build than they were approved for, while 22.5% of dwellings cost less.

Overall, new residential dwellings cost 1.4% more to build than they were approved for, with an average increase of $3,941 per dwelling.

Apartments had the largest changes in the cost of construction, rising by 6.3% between approval and commencement and falling by 8.1% between commencement and completion.

Houses had the smallest cost changes, rising by 2.3% from approval to commencement and falling by 0.4% from commencement to completion.