Construction costs hit highest annual growth rate since 2005
The surging cost of construction could push the price of new homes even further up, according to new data from CoreLogic.
The data showed that despite the growth rate slowing in the fourth quarter, national construction costs spiked 7.3% over 2021 – the highest annual growth rate since 2005.
After a 3.8% spike in national construction costs in Q3, quarterly construction cost growth slowed to 1.1% in the fourth quarter, bringing the quarterly growth trend back in line with the five-year average.
Tim Lawless, research director at CoreLogic, said the smaller rise over Q4 might reflect some rebalancing after Q3’s jump. However, CoreLogic expects growth in residential construction costs to remain above average over the coming quarter, driven by continuing supply-chain disruptions.
“There is a significant amount of residential construction work in the pipeline that has been approved but not yet completed,” Lawless said. “With some materials such as timber and metal products reportedly remaining in short supply, there is the possibility some residential projects will be delayed or run over budget.”
Cost increases are still being driven primarily by timber, according to CoreLogic. Other segments of the market are also volatile, with increasing pressure on metal costs. The upshot of these issues could be a spike in home prices, Lawless said.
“With such a large rise in construction costs over the year, we could see this translating into more expensive new homes and bigger renovation costs, ultimately placing additional upwards pressure on inflation,” he said.
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The spike in construction costs comes at a time when CoreLogic is reporting a 22.4% rise in housing prices nationally over the 12 months to January. Higher construction costs are likely to exacerbate the affordability challenges already present in the housing market, CoreLogic said.
Matthew Walker, head of insurance solutions at CoreLogic, said that rising construction costs wouldn’t just impact builders, home renovators and businesses, but all homeowners and property investors.
“In these times of rapidly rising home and construction costs, under-insurance can quickly become a real threat to what is a most valuable asset,” Walker said. “It’s important that homeowners keep track of their sum insured and annually check that it is sufficient should the worst occur by using their insurer’s rebuild calculator or giving them a call.”
