Australia’s construction sector said to be in ‘early stages’ of another boom

The data shows that residential construction costs are outpacing inflation.

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New data has revealed Australia’s largest quarterly rise in residential construction since 2014.

According to CoreLogic’s latest Cordell Housing Index Price (CHIP) results, the quarter ending June 2021 saw an increase of 1.4 per cent. This increase bumped the growth of annual national construction upwards by 3.9 per cent.

CoreLogic’s CHIP index essentially measures movements in the overall costs associated with residential construction, relying on them as a broad indicator of market activity. If construction costs go up, it’s usually seen as a sign that more construction is happening.

This time around, CoreLogic attributed the rise to the combination of supply-side issues, such as a shortage of building materials, and strong demand for new dwellings.

Citing the latest figures on dwelling approvals published by the Australian Bureau of Statistics, they noted that while monthly dwelling approvals fell 6.7 per cent in June 2021, the overall number of dwellings being approved each month remains well above that level seen in 2019 and 2020.

CoreLogic research director Tim Lawless said the surge in dwelling approvals over the past 12 months is a sign that Australia’s residential construction sector is currently in the early stages of an extended period of heightened construction activity.

“The substantial pipeline of residential construction work is likely to keep both building materials and trades in short supply for an extended period of time,” he said. 

CoreLogic noted that total dwelling approvals in the last financial year were 27.3 per cent higher than that of the 2019-2020 financial year. Private sector house approvals, which are 42.8 per cent higher year-on-year, were called out as a major driver for this result. 

Broken down by state, NSW recorded 1.3 per cent quarterly growth in June 2021. This brings the state’s annual growth rate up to 3.4 per cent. 

In comparison, Victoria recorded 1.4 per cent quarterly growth and 3.9 per cent annual growth. 

Queensland managed to lead the pack when it came to annual growth. Off the back of 1.4 per cent for the most-recent quarter, CoreLogic found that the sunshine state recorded a 4.7 per cent annual growth. 

Western Australia and South Australia also recorded strong results, with 1.4 per cent and 1.5 per cent quarterly growth, respectively. 

In the coming year, Mr Lawless expects housing construction costs to rise significantly as the sector grapples with supply chain shortages. 

These “higher construction costs will inevitably flow through to higher costs for new homes and renovations”, he predicted.

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