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Rising construction costs threaten national housing target, experts warn

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Construction costs for residential buildings in Australia rose by 1 per cent over the September quarter, according to CoreLogic’s latest Cordell Construction Cost Index (CCCI).

This increase aligns with the pre-COVID-19 decade average for cost rises, but experts warn it could jeopardise the federal government’s ambitious housing target.

CoreLogic economist Kaytlin Ezzy said the data would “likely put additional pressure on the federal government’s target of 1.2 million new homes”.

“With the official start date for the government’s target for 1.2 million new well-located homes over five years kicking off in July, the recent re-acceleration of the CCCI could put additional pressure on an already difficult-to-achieve goal,” she said.

Over the year to June, approximately 176,000 dwellings were completed, falling 26.6 per cent short of the 240,000 new homes required annually to meet the national housing target.

In August, national monthly dwelling approvals were 17.9 per cent below the decade average and 30 per cent below the 20,000-per-month target needed to achieve the goal.

Ezzy noted that despite 250,000 homes remaining in the construction pipeline nationally, the “sluggish flow of new dwelling approvals suggests a shortfall of projects once the backlog is worked through”.

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The latest consumer price index (CPI) data from the Australian Bureau of Statistics (ABS) showed a 1.1 per cent increase in new dwelling purchases by owner-occupiers during the June quarter.

Ezzy described the recent re-acceleration in the CCCI as “concerning for the new homes component of the CPI” due to their strong correlation.

“Although the latest quarterly rise aligns with the pre-COVID decade averages (1 per cent), overall construction costs have surged 29.5 per cent, putting significant pressure on the feasibility of many projects,” Ezzy said.

The Housing Industry Association’s (HIA) latest New Home Sales Report revealed that home sales in September remained unchanged from August, resulting in sales over the past 12 months registering 8.6 per cent higher than the previous year.

HIA economist Maurice Tapang noted that “consumer confidence is slowly trickling back into the Australian economy”, but emphasised that this sentiment will “take time to trickle through new home building, as consumers get greater certainty with interest rates and economic conditions”.

New home sales over the September quarter for 2024 were 3.9 per cent lower compared to the same time in the previous year, with varying results across states.

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