Construction cost price growth slows to 3.4%

Increases in building costs have now fallen to below-average levels, giving sweet relief to home owners after the explosion of building costs in 2021 and 2022.

Construction costs rose by 0.5% in the September quarter, compared to 0.6% in both the March and June quarters, according to the Cordell Construction Cost Index (CCCI). This was the lowest quarterly reading since 2020.

As a result, the annual growth rate fell to 3.4%, compared to 6.4% in the June quarter and 10.4% during the 2022 peak. That means annual price growth has now fallen below the 10-year average of 4.5%.

The CCCI measures construction costs for a standard three-bedroom, two-bathroom, single-storey brick-and-tile house completed over a typical period of time without undue delays.

Why price growth is likely to remain moderate

CoreLogic Chief Property Economist Kelvin Davidson said we've now entered a more subdued phase for construction cost inflation, reflecting the marked easing in materials supply chains, compared to the pandemic-affected period over 2021 and 2022.

“New dwelling consents are slowing, but remain elevated with more than 40,000 on a 12-month rolling basis. This is keeping builders relatively busy working through a pipeline of previously-approved dwellings, as well as a continued stream of work on alterations and additions. Although building capacity pressures have eased, half of project costs stem from labour, and continued growth in wages is keeping some pressure on overall construction costs,” he said.

Mr Davidson said it's likely home consents would fall further, with this reduction in demand having a moderating effect on price growth.

“It wouldn’t be a surprise to see the quarterly rate of change in the CCCI continue in the vicinity of 0.5% for the next few quarters. While new builds probably won’t get cheaper, a controlled annual growth rate of 2-3% gives confidence for buyers to invest and for developers to keep bringing projects forward,” he said.

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