The CCCI quarterly growth rate reaccelerated in Q1 2022 to 2.4%, more than double Q4 2021 (1.1%) but below the 3.8% surge over the three months to September 2021.

CoreLogic Construction Cost Estimation Manager, John Bennett, says Cordell data shows timber, metals and imported products are driving much of the growth.

“Timber costs continue to rise, with cladding, decking and other timber items affected. Steep rises in metal prices are also now flowing through to the market, with structural steel, fixings and metal components hit hard.

“We continued to see volatility in the rest of the market, with imported products the most vulnerable due to elevated shipping costs. Rising fuel costs are also on the radar and we have continued to see further increases in the cost of other materials,” says Mr Bennett.

CoreLogic Research Director Tim Lawless says the annual change in construction costs is approaching double digits, with the impact multi-layered.

“Construction cost growth adds a further element of uncertainty to new building projects and renovations as well as inflationary pressures to the economy,” says Mr Lawless.

“While the most obvious impact from high residential building costs are with builders, new home buyers and renovators, another important consideration is the sum insured by home owners. With construction costs up more than 25% over the past five years, it’s important for home owners to reassess their insurance terms and make sure they are adequately covered should they need to make a claim.”

Queensland recorded the lowest quarterly increase in construction costs over Q1 2022 (2.2%), while South Australia saw the highest quarterly growth (2.5%). New South Wales, Victoria and Western Australia each rose 2.4%, in line with the national growth rate.

Mr Lawless says “Considering the record number of houses approved for construction during the HomeBuilder grant along with additional rebuild and repair work from the recent floods, demand for construction materials is likely to remain high.  At the same time, supply side challenges persist.  A shortage of key materials such as structural timbers and metal products along with higher fuel costs, and labour shortages, is likely to keep upwards pressure on building costs for some time yet.”

CoreLogic researches, tracks and reports on materials and labour costs which flows through its Cordell construction solutions to help businesses make better decisions, estimate rebuild and insurance quotes easily and, ultimately, price risk effectively.

Key findings by state – Q1 2022 CCCI Report

• CCCI in New South Wales and Victoria increased 2.4% over the March quarter, taking both states’ annual growth rate to 8.8%. This is the fastest pace of annual growth in construction costs for NSW and Victoria since the 12 months to June 2001.
• Western Australia’s CCCI rose 2.4% over the March quarter and 9.5% annually, significantly higher than the state’s decade average annual growth rate of 4.2%.
• Queensland’s CCCI increased 2.2% over Q1 2022, the lowest of the states. The sunshine state’s annual growth is now at 8.7%.
• South Australia recorded the highest quarterly and annual growth rates of the states, as 2.5% and 9.8% growth respectively.

The CCCI report measures the rate of change of construction costs within the residential market and covers freestanding and semi-detached single and two storey homes.

Source: CoreLogic

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CoreLogic’s Cordell Construction Cost Index (CCCI) found a softening in quarterly construction cost growth in Q4 to 1.1%, from the 3.8% surge in national residential construction costs over the three months to September 2021. The change brings the quarterly trend back in line with the five-year average and below the Consumer Price Index of 1.3% for the same period.

Tim Lawless, CoreLogic research director, said the smaller rise over the quarter might reflect some rebalancing in the index after Q3’s jump. The data company expects growth in residential construction costs, however, to remain above average over the coming quarter as supply-chain disruptions persist.

“There is a significant amount of residential construction work in the pipeline that has been approved but not yet completed,” Lawless said. “With some materials such as timber and metal products reportedly remaining in short supply, there is the possibility some residential projects will be delayed or run over budget.”

Timber (mostly structural timber) continues to be the primary driver of cost increases, while other segments of the market remain volatile, with increasing pressure on metal costs, the Cordell data showed.

“With such a large rise in construction costs over the year, we could see this translating into more expensive new homes and bigger renovation costs, ultimately placing additional upwards pressure on inflation,” Lawless said.

Source: BrokerNews

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However, the building sector, in general, is still experiencing a significant price increase in building materials, particularly when it comes to steel and timber products, due to sourcing and shipping constraints. 

There are three main causes of building price inflation: 

• First, the Black Summer Bushfires in 2019/2020 destroyed a large amount of local hardwood and softwood.
• Previously, Australia imported 25% of its timber. That has become tricky to navigate due to the shipping constraints brought about by the pandemic. 
• And due to the Government Home Builder Scheme, there is a higher demand for materials because of new builds, but a low supply of materials.

Beyond the supply shortages, labour issues are causing building projects to stall, which is significantly impacting when the build is actually completed.

Nonetheless, this does not mean that all builders are struggling with this and you should consult your builder of choice to gain more accurate information based on your building project.

Here’s what you can expect from building cost price increases. 

Brisbane

Building contractors are still submitting offers to complete work, so the tender activity levels in the construction industry are strong, and there is no sign that that is going to change in the coming months. 

However, the uncertainty around the supply and demand of building materials impacts how long the building project will take. So, you’ll likely see extensions to contract durations to accommodate extended lead times.

Source: DuoTax

Melbourne

Due to the housing boom, it looks like the high level of activity within the infrastructure sector will continue into the next quarter. However, the construction industry continues to endure the COVID-19 restrictions. 

And due to a lack of skilled labour and availability of critical materials, the effects of increased prices will likely be realised in the coming quarters. 

Source: DuoTax

Sydney

Thanks to the range of policies in place before the June lockdown, the construction industry continued to grow throughout all sectors in Sydney. 

However, the recently increased border restrictions and lockdown have influenced the supply chains and the import time frames, driving more price increases and causing delays in project delivery. 

Fortunately, with the ease of local restrictions looming and the reopening of borders, the sector’s confidence level is likely to recover. 

Source: DuoTax

Key Takeaways

The Australian construction industry has experienced a period of unprecedented growth in recent years, driven by demand for new homes that is outrunning supply. This trend looks set to continue as prices grow above inflation levels due to shortages with labour and materials – limiting building projects across all major markets nationwide.

In the wake of COVID-19, many global supply chains have come to a grinding halt. This has had major consequences for both material delivery and pricing. Coupled with state border closure, significant labour shortages are resulting in delayed project times. 

While contractors seem to be absorbing the price increases, if they continue to rise, it’s unlikely that they will be able to sustain the absorption. So, if you are considering building a new property, it’s worth taking into account that there is likely to be a significant increase in project costs over the next few quarters. 

Source: DuoTax

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