Construction costs rising at a near record-setting rate

Construction costs are rising at their fastest rate since the introduction of the GST, with supply chain disruptions causing a shortage of building materials as new builds and renovations activity soars.

Data released by CoreLogic showed construction costs increased 3.8 per cent nationally in the September quarter, far outpacing the 0.8 per cent growth recorded in the Consumer Price Index at the same time. 

The quarterly increase to the Cordell Construction Cost Index was the largest three-month rise since the third quarter of 2000, when construction costs rocketed by 7.2 per cent following the introduction of the GST.

On an annual basis, construction costs are up 7.1 per cent, the report said.

South Australia and Western Australia led the nation in the September quarter with 4.4 per cent and 4.3 per cent increases to the costs of construction, with both states recording 7.5 per cent annual growth.

Costs of construction in Queensland and New South Wales rose by 3.8 per cent for the quarter, leading to annual gains of 8 per cent and 6.6 per cent, respectively.

In Victoria, the cost of construction rose 3.5 per cent in the September quarter for a 6.8 per cent annual gain.

CoreLogic research director Tim Lawless said demand for materials and trades to meet a surge of building approvals now progressing through to being built was behind the sharp increases in construction costs.

Mr Lawless said supply chain disruptions had placed further pressure on the building industry.

“The quarterly rate of growth in construction costs is happening everywhere and is not restricted to one city or state, it’s a national trend,” he said.

“There was a much bigger increase in our index when the GST was introduced, however outside of that structural adjustment this is by far the biggest quarterly change on record. 

“This would be the largest market driven increase we’ve seen.

“For anyone who is looking to build or to renovate, or for someone who owns a business involved in the residential construction industry, it means they are all likely to be facing significantly higher costs.”

Pricing volatility has largely been driven by increases in prices for structural timber, as well as a range of metal products and plumbing supplies.

Mr Lawless said with the nation looking at an extended period of heightened residential construction, developers, builders and consumers would likely be facing further pressure.

“This doesn’t look like a short-term spike, the surge in construction costs is due to the amount of construction activity that’s been approved at a time when we can’t import more skilled labour and are facing significant supply chain disruptions,” he said.

“This construction cost inflation could continue for another 12 to 18 months.

“It’s unlikely the industry can absorb a cost increase this significant into their margins and higher construction costs will ultimately be passed on to the consumer, placing further upwards pressure on the price of a new dwelling or renovation.”