Construction costs are still on the rise – report

Home builders have continued to feel the pressure of steep construction costs over the past three months, as CoreLogic’s latest Cordell Construction Cost Index (CCCI) revealed a 2.4% quarterly growth rate on par with the figures reported for the first quarter of the year.

The second quarter of 2022 saw construction costs growing at a pace that was more than double the 1.1% rate of Q4 2021 and just below the 3.8% surge of Q3 2021, when supply chains were slowed down by COVID-19 lockdowns.

Moreover, this growth amounted to a 10% annual increase, pointing to the highest annual growth rate on record since the introduction of the goods and services tax in 2001. 

According to John Bennet, construction cost estimation manager at CoreLogic, these figures reflect the mounting costs of metal, structural steel, reinforcing, fixings and fencing, and timber products.

“Suppliers are frequently mentioning the impact of rising fuel, freight and electricity costs on their bottom line and these are significant additional challenges being faced by the industry,” said Bennet. “It is important to note these factors only add to other pressures that have impacted the residential construction industry for 18 months now, such as labour availability and overheads. A shortage of labour and materials means a delay in completion times, which leaves builders vulnerable to market changes and holding costs.”

Bennet added that the gains for this quarter were evident across the country, with NSW and Victoria recording the highest quarterly index change at 2.5%. Below that were Queensland and Western Australia with a 2.3% quarterly increase, and South Australia with 2.2%.

With these increases in mind, CoreLogic research director Tim Lawless warned that home builders are unlikely to experience a reprieve soon, adding that the short- and medium-term outlook for the construction industry still looked bleak.

“The pipeline of construction approved during COVID is still being worked through and there’s been a number of major weather events as recently as this month, which require significant rebuild and repair work. This all adds additional demand-side pressure for construction materials and trades,” said Lawless. “There’s also no reprieve on the supply side either with a lack of materials, elevated fuel costs and broader inflationary pressures. All of these factors have an impact and are likely to push building costs higher for some time yet.”