Construction costs on the rise

Home builders and renovators across Australia are starting to feel some hip-pocket pain, with the cost of construction rising at its fastest rate in more than 20 years.

That’s led to predictions that the situation won’t get better for another 12 to 18 months.

A surge in new builds and renovation projects, disruptions to supply chains and a shortage of building materials and labour are all to blame for a 3.8 per cent rise in building costs during the September quarter, according to a statement from CoreLogic.

That’s the largest quarterly increase recorded since 2000, when costs rose 7.2 per cent after the introduction of the GST.

“The quarterly rate of growth in construction costs is happening everywhere and is not restricted to one city or state, it’s a national trend,” said CoreLogic chief economist Tim Lawless.

“GST-related structural adjustments aside, the latest figures represented the biggest quarterly change on record.”

The annual growth rate was also at its highest point since March 2005, with costs increasing 7.1 per cent in the 12 months to September.

Part of the issue is that there are too many homes awaiting construction and too few people to build them, Mr Lawless said, spelling bad news for anyone about to start a new project.

“For anyone who is looking to build or to renovate, or for someone who owns a business involved in the residential construction industry, it means they are all likely to be facing significantly higher costs,” Mr Lawless said.

Part of the reason for the spike in demand could be attributed to the Federal Government’s HomeBuilder grants, while the closure of international borders had created issues in the labour market.

“This construction cost inflation could continue for another 12 to 18 months,” Mr Lawless said.

“It’s unlikely the industry can absorb a cost increase this significant into their margins and higher construction costs will ultimately be passed on to the consumer, placing further upwards pressure on the price of a new dwelling or renovation.”

The growth in construction costs was fairly uniform across the country, though costs rose by the smallest amount in Victoria, at 3.5 per cent, and the highest in South Australia, up by 4.4 per cent.