The expenses involved with building and renovating a home have increased by 3.8 per cent nationally in the three months prior to September – more than four times the consumer price index of 0.8 per cent during this same interval, and the biggest quarterly spike since GST was introduced in 2000, the Cordell Construction Cost Index (CCCI) reveals.

Throughout the year, residential building costs have surged by 7.1 per cent – the highest yearly increase in more than 16 years, as the increase in new builds and renovations went along with the disruptions to supply chains and a shortage of building materials and labour.

CoreLogic research director Tim Lawless stated the most elevated construction prices were liable to add to affordability issues already in effect in the established home market.

There’s sufficient evidence that the price of new housing and residential building is exerting upward pressure on Australia’s inflation rates and these figures will increase that pressure, he said.

Lawless said the increase in dwelling approvals, which spiked in March, was now progressing to the building stage, prompting expanded demand for materials and tradies.

The quarterly rate of growth in construction expenses is occurring everywhere and is not restricted to a single city or state, it’s a nationwide trend, he said.

There was a far more substantial increase in our index when the GST was introduced, yet outside of that structural adjustment, this is thus far the most substantial quarterly change recorded. This would be the largest market-generated increase recorded.

For anyone seeking to construct or to renovate, or for a business owner working for the residential building industry, it means they are liable to be confronted with substantially significantly higher costs.

Building costs went up 3.8 per cent in NSW throughout the quarter, more than double from the last three months. Over the year, they elevated by 6.6 per cent – the highest yearly growth on record for the state.

Sydney-based builder and developer Mark Bainey, chief executive of Capio Property Group, stated homebuyers would be most affected by escalating construction costs.

Dwelling prices will have to escalate as developers pass on the escalation in price, he stated. He doesn’t know what actions other developers will take, but they must achieve their margins, so they must pass it on to the consumer.

Perth developer Gary Dempsey, founder of Gary Dempsey Developments, said while they have been insulated by the increase in the price of materials, the shortage of labour had caused substantial delays in his projects.

They’re fortunate that they’ve managed to pre-order sizable quantities of materials at the inception of COVID-19, so they’re not affected by the jumping costs, but they’ve been challenged in recent months because subcontractors have been unable to complete their job as they continued to lose laborers to the mining industry, he said.

He says he himself has been working onsite, seven days a week, and outside workers coming in are in short supply.

Dempsey said that uncertainty about building costs has caused him to delay his next project – a 17-level apartment block in Scarborough.

He says they don’t want to hasten into pre-sales presently, although we know they could be prosperous in this market. So, he believes there’s going to be a major shortage of completed stock because projects not on the ground, likely will be delayed.

Western Australia reported a 4.3 per cent increase in building expenses for the quarter, up significantly on its June quarterly growth rate of 1.4 per cent and the quickest rate of growth in more than 20 years.

Queensland recorded a 3.8 per cent quarterly increase, Victoria was up by 3.5 per cent and SA leapt by 4.4 per cent – the highest quarterly rise across the five largest states.

Lawless said building costs could escalate more in years ahead.

This doesn’t appear to be a short-term spike, the boost in construction costs is owed to the degree of construction activity approved at a time when they are unable to import more skilled labour and are confronted by substantial supply chain disruptions, he said.

This construction cost inflation could go on for another year to year and a half. It’s not likely that the industry can take a cost rise this substantial into their margins and more elevated construction costs will ultimately be passed on to the customer, upping the price of a new home or renovation.

 

Source: afr.com

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