Residential construction costs growth slows to 22-year low
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Residential construction costs in Australia are rising at their slowest annual pace in over two decades, according to CoreLogic’s latest Cordell Construction Cost Index (CCCI).
The national CCCI, which tracks the cost of building a typical new dwelling, recorded a 0.5% increase in the second quarter of 2024, down from 0.8% in the first quarter.
For the 2024 financial year, annual costs rose by 2.6%, marking the smallest annual increase since March 2002 and significantly below the pre-COVID decade average of 4.0%.
CoreLogic Research Director Tim Lawless noted that while quarterly growth is now below normal levels, overall construction costs remain elevated.
“The growth in costs has finally returned within normal margins, however the price of construction is not falling and building or renovating remains almost 30% more expensive now than pre-COVID after an extended period of escalating costs,” Lawless said.
He suggested that the easing of cost growth, combined with higher established housing prices, may help improve builder profit margins and increase confidence in pricing for new builds and renovations.
Quarterly changes in the CCCI were relatively consistent across states, ranging from 0.3% in Queensland to 0.6% in NSW and Victoria.
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John Bennett, CoreLogic Construction Cost Estimation Manager, attributed the overall slowdown to reduced pricing volatility among materials, with some categories like timbers and metal products seeing price reductions.
However, Bennett noted that labour costs remain elevated and contribute significantly to residential project costs.
Lawless highlighted that construction costs are now increasing at a slower rate than inflation, which could help ease inflationary pressures in the housing sector.
Despite a recent uptick in building approvals, Lawless cautioned that the construction industry is still navigating the bottom of the approvals cycle, with many approved projects not progressing due to various factors.
The CCCI is based on the costs of building a typical three-bedroom, two-bathroom dwelling using standard materials and practices.
As construction costs stabilize, the industry will be watching closely to see if this trend continues and what impact it may have on the broader housing market and economy.