The signs construction costs may be easing

Could the latest data reveal that the building cost spike is finally coming to an end?

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New research from property analytic company CoreLogic has revealed that the upward trend in construction cost growth is starting to level out.

While costs have continued to increase over the last quarter, the growth rate is substantially lower than previous quarters, coming in at an average increase of just 0.5 per cent for the September quarter.

The Cordell Construction Cost Index uses national data to estimate the cost of building a standard three-bedroom, two-bathroom domestic home.

The 0.5 per cent lift marks the smallest increase since June 2019, and is only half the pre-COVID-19 average of 1 per cent per quarter.

Eliza Owen, head of research at CoreLogic Australia, clarified that “while construction costs are still very elevated, the ongoing level of increase has normalised”.

“This is the fourth consecutive slowdown in the quarterly pace of growth for residential construction costs,” Ms Owen explained.

For data watchers used to the increases of up to 4.7 per cent a quarter seen in 2022, the slowdown in cost growth will come as a welcome relief.

Victorian developers will be particularly reassured, with a growth rate of 0.3 per cent giving Victoria the largest cost deceleration across the states and territories. The only state to witness an increased growth rate is Queensland, with strong internal migration trends setting the state’s cost hike at 0.8 per cent.

CoreLogic’s construction cost estimation manager John Bennett shared that building cost hikes are now a matter of labour, rather than materials.

He explained that “while material costs appear to have stabilised in general, labour costs have had a number of new pressures applied,” with award rates and superannuation guarantees for labourers both shooting up in the last few months.

For the construction industry, CoreLogic’s data suggests mixed news for the future. On one hand, the analytics company predicts that the reduction in new dwelling approvals will “free up capacity for material and labour resources”.

On the other hand, however, this new capacity will “also mean greater competition for new jobs,” Ms Owen prophesied.

Whether the cost deceleration spells a reprieve for the construction industry or whether this decline is a double-edged sword remains to be seen.

Only time will tell whether the “continual easing in the CCCI” will end construction cost pressures once and for all.

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