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Are Australia’s soaring construction costs finally starting to level out?

by xyonent
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Apartment Block Construction Spi.jpg

New data suggests that homebuilding costs may finally be stabilizing.

CoreLogic’s Cordell Construction Cost Index for Q2 2024 shows that homebuilding costs have risen just 0.5% over the past three months.

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This follows a 0.8% increase recorded in the first quarter of 2024.

This means that construction costs for fiscal year 2024 rose just 2.6% over the 12-month period, the smallest annual cost increase since March 2002.

It also noted that last year’s figure was “significantly below the 10-year pre-COVID average of 4%.”

For Tim Lawless, research director at CoreLogic, this means construction costs are “finally back within normal limits.”

The grace period comes with a caveat: Construction costs remain high. “After a long period of rising costs, construction and renovations are now nearly 30% more expensive than they were pre-COVID,” Lawless said.

Still, Lawless expects the latest survey results will “help builders restore profit margins over time and lead to more confidence in pricing new builds and renovations.”

Nationally, the Consumer Price Index (CPI) rose 1% in the March quarter, outpacing a 0.8% rise in construction costs.

With construction cost growth slowing further in the June quarter, Lawless predicts that “the growth rate is likely to be well below the CPI when the index is released later this month.”

Because homebuilding costs are a key data point for the housing portion of the CPI, Lawless said the slowdown in homebuilding costs is “a positive outcome for inflationary pressures.”

John Bennett, construction cost estimating manager at CoreLogic, attributed the recent price stabilization to less volatility in raw material prices.

Prices fell in areas such as timber and metal products, which are important in residential construction for framing, trusses, flooring, exterior cladding and roofing.

Other costs are still rising, and Bennett notes that “while the persistent issues across the supply chain that plagued the industry throughout the COVID-19 pandemic have largely been resolved, labour costs, for example, remain high and are having a significant impact on all residential projects.”

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