Flood demand to worsen supply strain

Construction costs are continuing to rise from record levels as experts warn Victoria’s flood repairs will add further stress to the national industry.

Property industry researcher CoreLogic has released its latest Cordell Construction Cost Index for the September quarter, which showed costs are up 11 per cent compared with the same time last year.

The annual growth rate is up from the record 10 per cent in the previous report in June, while the quarterly rise of 4.7 per cent is almost double the previous result of 2.4 per cent.

Victoria has spiked more than any other state in the 12 months to September, with costs up by 12.3 per cent.

CoreLogic Construction Cost estimation manager John Bennett said price rises were evident across a broadening range of materials.

“In particular we are recording significant volatility in pre-fabricated framing and the range of products affected by higher building material costs is only growing, with many suppliers having little choice but to pass on price increases,” he said.

Mr Bennett said previously stable materials such as wall linings, plasterboard and fibre cement were all more expensive in the latest quarter, while doors also sharply rose in cost.

He also said the combined impact of supply constraints, as well as labour, fuel, freight, electricity and disposal costs were heaping unprecedented pressure on the construction sector.

“A shortage of labour and more expensive overheads continue to have a bearing on the industry and its impact on the residential construction industry has not been lost with ongoing delays to completion times and a blow out to builders holding costs during a period of market change,” he said.

Industry watchers say impact of natural disasters this year has also squeezed supply chains, with recent flooding events across Victoria likely to worsen this impact.

“The backlog of construction approved during COVID is still being worked through and on top of that is the rebuild and repair work following this year’s major weather events, with more forecast this month,” CoreLogic’s research director Tim Lawless said.

“The demand and pressure for construction materials and trades is expected to continue.”

“There’s no quick solution for providing additional materials and fuel costs remain elevated. All of these factors have an impact and are likely to push building costs higher for some time yet.

“Persistently high construction costs are clearly adding to inflationary pressures as well, with the price of new dwellings one of the most significant contributors to the June quarter inflation reading.”