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Construction costs hit 20-year high with no reprieve in sight

New data from CoreLogic for the third quarter of 2022 has indicated the severity of the construction cost crisis plaguing Australia.

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The research firm’s Cordell Construction Cost Index (CCCI) found that in the 12 months to September 2022, national residential construction costs increased a record rate of 11 per cent.

Quarterly growth rested at 4.7 per cent, higher than the previous quarter’s (Q2) 2.4 per cent increase and bested the 3.8 per cent price surge recorded over the three months preceding September 2021, a time when lockdowns severely impacted domestic supply chains.

John Bennett, CoreLogic construction cost estimation manager, said timber and metal materials were among the most common materials experiencing price increases, which hinders framing, amongst other activities. 

“In particular, we are recording significant volatility in prefabricated framing, and the range of products affected by higher building material costs is only growing, with many suppliers having little choice but to pass on price increases,” he explained. 

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By-products of the increased costs include a rise in the cost of wall linings, including plasterboards and fibre cement, as well as the price of doors.

The soaring costs of raw materials, labour, and fuel have offset the stabilisation of sea-freight prices that suppliers are reporting, which places further strain on residential construction costs.

However, the construction sector is not the only one fraught with price increases. Mr Bennet explained that the CCCI is seeing a “large increase in waste disposal fees across most states, and volatility in professional fees and services, with Victoria and Queensland showing the highest cost increases”.

Nationally, construction costs in the September quarter grew quicker than any month, excluding the September 2000 quarter, which was impacted by the introduction of the goods and services tax. Across the board, Western Australia experienced the lowest rate of growth at 3.3 per cent. Conversely, prices in Queensland jumped 5.8 per cent, the largest of any Australian state. 

Mr Bennett said the industry is facing significant challenges that are compounding quarterly, with suppliers constantly managing the impact of rising fuel, freight, and electricity on their bottom line for over 18 months.

“A shortage of labour and more expensive overheads continue to have a bearing on the industry, and its impact on the residential construction industry has not been lost with ongoing delays to completion times and a blow out to builders holding costs during a period of market change,” he said. 

CoreLogic research director Tim Lawless added to this, stating that although rising construction costs are not a new phenomenon, their persistence, as well as the presence of other factors such as labour shortages and rising interest rates, will remain a thorn in the nation’s side moving forward.

Mr Lawless explained that “this new high in the cost of construction flows through to margins, unexpected costs for consumers and potentially lengthy delays to home owners who are waiting on the sidelines, often in rental or short-term accommodation, for the completion or possibly the start of their project”. 

“We also forget the impact to existing home owners and the insurance industry, as they struggle to reassess existing policies in a timely manner to make sure they are adequately covered in the event they need to make a claim,” he said.

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Both the backlog of construction approved during COVID that is still being worked through and repair work initiated by several major weather events lead Mr Lawless to forecast “the demand and pressure for construction materials and trades to continue”.

He concluded that “there’s no quick solution for providing additional materials and fuel costs remain elevated. All these factors have an impact and are likely to push building costs higher for some time yet.”

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