Easing construction costs and declining demand drive slowdown, offering relief for buyers and builders
New home price inflation in Australia slowed to 2.8% in the 12 months to November, down from 4.2% in the year to October, according to the latest Consumer Price Index (CPI) data from the Australian Bureau of Statistics (ABS).
The latest figure marks the lowest annual increase in new dwelling prices since July 2021. This slowdown in new home price inflation was welcome news for both buyers and builders, according to Paul Ryan (pictured above), senior economist at REA Group.
“There has been a lot of uncertainty about new home costs increasing over the past few years,” Ryan said. “The fact that costs are not rising as much — and could potentially fall slightly — will likely encourage more people to consider the new home market.”
The moderation in price inflation comes as construction cost pressures ease following supply chain disruptions in recent years. Historically low home building approvals and subdued demand for new homes have also reduced competition for tradespeople and labour, alleviating cost pressures on builders.
Builders are responding to the weaker demand by offering discounts and promotional incentives to attract buyers. Ryan noted that the combination of easing construction costs and rising prices for existing homes in some markets could make new home projects more viable, potentially leading to increased construction activity.
The deceleration in new home price inflation is a positive sign for the Reserve Bank of Australia (RBA), which has been working to bring inflation back within its 2-3% target range.
“It’s one of the key disinflationary drivers pushing inflation back down to the RBA’s target, and it gives the RBA more room to consider interest rate cuts, whether it’s in February or May,” Ryan said.
The easing in construction costs comes as national home building approvals fell by 3.6% month-on-month in November, according to ABS data released Tuesday.
Daniel Rossi, ABS head of construction statistics, said the decline affected all types of residential building approvals. Approvals for private sector houses fell 1.7%, while approvals for private sector apartments and other dwellings dropped 10.8%.
“Despite the fall, approvals for total dwellings remain 3.2% higher than in November 2023,” Rossi added.
While monthly approvals declined, some experts see signs of improvement. Housing Industry Association senior economist Matt King said building approvals were up 7.2% over the three months to November, suggesting the market could be stabilising.
“Building approvals data reveals the ongoing strengthening in the new home building market and continues to point to a moderate-paced recovery in 2025,” King said. “Following a period of prolonged weakness, there are signs of life again in building approvals.”
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