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CoreLogic’s latest Cordell Construction Cost Index (CCCI) has shown that residential construction costs grew 1 per cent over the September quarter, in line with the pre-COVID-19 decade average.
The national CCCI was up from a 0.5 per cent rise over the June quarter 2024, marking the strongest quarterly rise since the 1.9 per cent increase during the three months to December 2022.
Annually, the CCCI saw construction costs rise 3.2 per cent, up from 2.6 per cent in the 12 months to June. However, this was down from the 4 per cent figure from the same time last year.
Kaytlin Ezzy, CoreLogic economist, said that the CCCI 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 well-located homes over fives years kicking off in July, the recent re-acceleration of the CCCI could put additional pressure on an already difficult-to-achieve goal,” Ezzy said.
“Over the year to June, approximately 176,000 dwellings were completed, -26.6 per cent below the 240,000 annually needed to fulfil the target.
“While 250,000 homes remain within the construction pipeline nationally, the sluggish flow of new dwelling approvals suggests a shortfall of projects once the backlog is worked through.”
Looking at the data on a state-by-state basis, Queensland recorded the highest change in the CCCI, with the largest quarterly increase in construction costs of 1.1 per cent, up from the 0.3 per cent recorded during the June quarter.
Both NSW and Western Australia recorded cost increases of 1 per cent and Victoria and South Australia had the smallest quarterly rises, both increasing by 0.8 per cent over the September quarter.
On the release of the June quarter Consumer Price Index (CPI) data, the Australian Bureau of Statistics (ABS) said that new dwelling purchases by owner-occupiers increased by 1.1 per cent as builders passed on higher labour and material costs to buyers, suggesting that construction costs are a leading indicator for CPI growth.
Ezzy commented on the CPI data, saying that “residential building costs make up the largest share of the housing component of the Consumer Price Index”.
“As a forward indicator, the recent re-acceleration in the CCCI is concerning for the new homes component of the CPI, as the two series are highly correlated,” Ezzy said.
“This may partially offset the impact of slowing rent growth on housing inflation.”
Ezzy said that the increase would be “unwelcome news” for builders, who are still attempting to repair their profit margins.
“Although the latest quarterly rise aligns with the pre-COVID decade average (1.0 per cent), overall construction costs have surged 29.5 per cent, putting significant pressure on the feasibility of many projects,” Ezzy said.
Meanwhile, Housing Industry Association (HIA) economist Maurice Tapang commented on the back of the HIA New Home Sales report that leading indicators in home building activity “continue to show market confidence in new home building is returning” as new home sales remained stable in September.
New home sales remained unchanged from August to September, leaving sales over the last 12 months 8.6 per cent higher than the previous year.
“Leading indicators of home building activity continue to suggest that the market has already reached its trough sometime in mid-2024, even as NCC changes distort and obscure the data,” Tapang said.
“While it remains to be seen, strong demand for housing will likely keep this pull-forward relatively modest, as economic and household conditions improve.
“Strong population growth, low unemployment, real wages growth and the prospect of no further increases to interest rates will drive new home building activity out of the downward cycle.”
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