Residential construction costs rose just 2.4% over the past year

Home building costs are now rising at their slowest pace in seven years after modest growth in prices over 2023, according to CoreLogic.

The latest Cordell Construction Cost Index (CCCI) found that prices rose 0.8% in the fourth quarter of 2023, which was below the 10-year average of 1.1%. This brought the annual change to 2.4%, well below the long-term average of 4.5%.

The CCCI measures the rate of change of construction costs for a typical three-bedroom, two-bathroom brick-and-tile single-storey house.

After building costs surged in 2021 and 2022, CoreLogic Chief Property Economist Kelvin Davidson said price growth slowed last year as supply and demand returned to balance.

“The industry itself is simply facing less pressure on overall capacity, compared to its peak at the end of 2022, where over-stretched builders struggled to keep up with workloads for new houses and renovations. Records show material supply chains are easing further, with timber prices stabilising, and even some modest falls for metal products,” he said.

“On the flipside however, there have been some price rises on general hardware, mainly imported products. It’s also possible that H1 insulation standards are exerting some upwards pressure but it’s not possible to disentangle that effect from all the other influences.”

Why minimal price growth is the new normal

Mr Davidson said construction cost growth was likely to remain subdued in 2024.

“The surge in net migration may help to restrain the pace of construction sector wage growth, which could also cap overall cost growth, considering that salaries account for 40-50% of the total cost of a new-build, excluding land. It wouldn’t be a surprise to see the annual rate of change in the CCCI run at 3-4% throughout the year, with builders still reasonably busy but not facing the intensity of recent years,” he said.

Dwelling consents are a key indicator of future building activity – and these have been declining.

As a result, Mr Davidson predicted that while prices were unlikely to go backwards, price growth would probably remain low beyond 2024.

“Encouragingly, demand incentives such as lower deposit requirements under the LVRs for people to invest in new-build properties should give developers some degree of confidence to keep bringing forward new projects. In the long run, this new supply is what we need to keep housing affordability under some kind of control,” he added.

Please reach out if you’re interested in building a new home, whether to live in or for investment purposes, so I can help you get a construction loan. It’s vital you secure your finance before signing a contract, so you understand what budget you can work with.