Home building cost crisis appears to be over

Construction costs continue to rise, but the pace of growth has significantly slowed, according to the latest Cordell Construction Cost Index.

The index – which measures the cost to build a single-storey, brick-and-tile home with three bedrooms and two bathrooms – found that:

• Construction costs rose 0.6% in the March quarter, well below the average quarterly increases of 2% recorded in 2021 and 2022.
• Year-on-year cost growth fell from 10.5% in the December quarter to 8.5% in the March quarter.

That means building costs are now increasing at their slowest rate since 2020.

Demand falling, supply shortages easing

CoreLogic Chief Property Economist Kelvin Davidson said the worst of the construction materials crisis was over.

“Availability of important materials such as plasterboard has improved, timber prices have also stabilised to some degree, especially structural timber. Metal components are showing a similarly flatter trend for prices too,” he said.

“The pipeline of housing that’s already been approved remains large – and will keep builders busy for a while yet – so the slowing influence on actual output volumes and construction cost growth may take a while to show through clearly. But the early signs have definitely arrived.”

Mr Davidson said home building activity was expected to fall in 2024, which would reduce demand for labour and materials, and put downward pressure on building costs.

“The hope has to be that this slowdown in construction sector output doesn’t turn out to be dramatic. Encouragingly, demand incentives such as tax advantages for people to invest in new-build properties should give developers some degree of confidence to keep bringing forward new projects,” he said.

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