CoreLogic's Construction Cost Index posts the lowest quarterly growth rate since 2020
Construction cost pressures in Australia have shown signs of easing after more than two years of continuous increases, according to CoreLogic's Cordell Construction Cost Index (CCCI).
The index, which measures the cost of building a typical new home, recorded a quarterly growth rate of 0.7% for the June quarter, the lowest since September 2020 and below the 1.2% average of the past decade.
While the annual growth rate remains high at 8.4%, it is an improvement from last year's 11.9%, the largest annual rise on record, CoreLogic reported. This trend provides some relief to the construction industry, which has experienced significant cost inflation recently.
Although there is still volatility within specific material types, overall there has been a softening and stabilisation of prices, particularly for metal and timber. Dwelling approvals have also declined, leading to reduced pressure on material costs and labour supply. Queensland recorded the highest quarterly and annual growth changes, while Western Australia had the lowest increase. However, the industry continues to face wage pressures due to tight labour market conditions, CoreLogic reported.
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The slowdown in residential construction costs aligns with quarterly Consumer Price Index (CPI) outcomes, indicating lower inflation numbers. The cost of new dwelling purchases, which has the largest weighting in the CPI basket, saw a decline in annual growth from 20.7% to 12.7%.
CoreLogic's head of research, Eliza Owen (pictured above), also noted that as the construction industry slowed, the established housing market entered a recovery phase with consecutive monthly increases in CoreLogic's national Home Value Index (HVI).
“Despite high inflation and 12 interest rate hikes in 14 months, an imbalance between supply and demand has put a floor under prices across the country,” Owen said. “Unprecedented increases in rent, persistently low vacancy rates and record levels of net overseas migration is also continuing to support housing demand. Net overseas migration was forecast to reach 400,000 people this financial year just past, and stay elevated for the foreseeable future, which is expected to create ongoing demand for Australian housing and place renewed pressure on demand for new dwellings down the track.”
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