Source: CoreLogic
The cost of building a home has been a major source of volatility in the Australian real estate market in recent years. There is a positive aspect, though: these expenses are starting to level out following a protracted period of sharp increase. The rate of increase in building prices has slowed to the lowest annual rate in 22 years, according to CoreLogic's most recent Cordell building Cost Index (CCCI).
Following a 0.8% increase in the first quarter of 2024, the national Cordell Construction Cost Index (CCCI) increased by a modest 0.5% in the second quarter. Despite a substantially higher 4.0% than the norm ten years ago, construction expenses increased by just 2.6% for the 2013 fiscal year, the lowest yearly increase since March 2002.
The moderate inflation trend continues across all states, with quarterly changes ranging from 0.3% in Queensland to 0.6% in New South Wales and Victoria. CoreLogic's Construction Cost Estimation Manager John Bennett says things the falling price. Prices of basic materials such as timber and steel needed for framing, trusses, flooring, cladding and roofing have fallen.
However, challenges remain. “The supply chain issues that plagued the industry throughout the pandemic have been largely addressed, but labor costs remain high, contributing significantly to any residential project,” says Bennett.
Interestingly, construction costs have risen more slowly than inflation. The National Consumer Price Index rose 1.0% in the March quarter, while rental construction spending rose 0.8%.
With an increase of 0.5% in the June quarter, the increase is likely to be well below the CPI when the index is released later this month. This decline in housing spending is a positive development for inflationary pressures, although rent continues to be a key driver of housing prices
Building approvals rose 5.5% in May, above expectations, but it’s too soon to consider this a turning point. Approval rates remain at a decade low, and many approvals have been put on hold for a variety of reasons, resulting in slow construction and a huge backlog of projects.
As we navigate these changes, it is clear that the construction industry is reaching a new level of equilibrium. Falling spending is a welcome relief, but looking at broader market trends going forward is important.
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