Home builders

No respite for homebuilders as construction costs continue to rise

CoreLogic’s Cordell Construction Cost Index (CCCI) for the second quarter of 2022 showed national residential construction costs rose 10.0% in the 12 months to June 2022, the rate of highest annual growth ever recorded apart from the introduction of the GST (10.2% over the year to March 2001).

CCIC’s indexed quarterly growth rate of 2.4% is a repeat of the figures recorded in the first quarter of 2022, more than double the fourth quarter of 2021 (1.1%) but less than the increase of 3.8% over the three months until September 2021 when the shutdowns had a greater impact on national supply chains.

CoreLogic Build Cost Estimator, John Bennett, said Cordell’s numbers show the cost of metal, structural steel, reinforcement, fasteners and fencing are under pressure, adding to higher wood product prices.

He said the spike in construction costs remained widespread, with the quarterly change in the index ranging from 2.2% in South Australia to 2.5% in New South Wales and Victoria. Queensland and Western Australia both saw a 2.3% increase in construction costs in the three months to June, slightly below the national growth rate.

“Suppliers frequently cite the impact of rising fuel, freight and electricity costs on their bottom line and these are significant additional challenges facing the industry,” he said.

“It is important to note that these factors only add to other pressures that have impacted the residential construction industry for 18 months now, such as labor availability and overhead costs. . A shortage of labor and materials means delayed completion times, leaving builders vulnerable to market changes and holding costs.

Tim Lawless, CoreLogic Research Director said the double-digit annual increase in construction costs was expected, with the impact being felt in several states this year.

“Growing construction costs are an additional concern for an industry already under immense workload pressures as well as economic conditions such as rising interest rates and inflationary pressures,” said Mr Lawless.

“Construction costs have increased by more than 25% in the last five years, which has an effect on margins for builders, budget collapses for customers who are not on fixed price contracts and owners who wait that their projects end or even begin in many cases. . It’s also impacting the insurance industry, as homeowners struggle to reassess existing policies to ensure they’re properly covered in case they need to make a claim.

Mr Lawless said the short to medium term outlook for the construction industry remained challenging with continued labor shortages and supply issues.

“The construction pipeline approved during COVID is still being worked on and there have been a number of major weather events as recently as this month which require extensive reconstruction and repair work. All of this adds further pressure on the demand side for building materials and trades,” he said.

“There is also no respite on the supply side with a shortage of materials, high fuel costs and broader inflationary pressures. All of these factors are impacting and are likely to drive up the costs of construction for some time to come.”

CoreLogic researches, tracks and reports on the costs of materials and labor flowing through its Cordell construction solutions to help companies make better decisions, easily estimate reconstruction and insurance quotes and, ultimately, to effectively assess risk.

Key Findings by State – CCCI Q2 2022 Report

  • The 2.5% rise in NSW construction costs in the three months to June 2022 was its second biggest quarterly rise in more than a decade. Annual costs increased by 10.1%.
  • Victoria CCIC recorded a 2.5% increase in construction costs in the June quarter, compared to 2.4% in the March quarter.
  • Queensland saw construction costs increase by 2.3% compared to the June quarter 2022, similar to the previous quarter (2.2%), and slightly less than the national quarterly growth rate of 2.4%
  • Western Australia recorded the second highest annual increase in construction costs, up 10.4% in the 12 months to June 2022. The 2.3% quarterly increase was slightly lower than the national growth rate.
  • South Australia has the highest annual increase in construction costs, up 10.5% and 2.2% in the three months to June 2022.

The CCCI report is a quarterly index measure that tracks the rate of change in residential construction costs. The modeling covers the most common “typical” new residential builds among newly built Australian homes.

For more information visit www.corelogic.com.au/news-research/reports/cordell-construction-cost-index.

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