Housing construction costs 'explode' : CoreLogic

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on November 11, 2021 Fact Checked
Housing construction costs 'explode' : CoreLogic

A building surge coupled with supply chain disruptions and a materials shortage has resulted in the fastest rise in rate of costs since GST was introduced.

CoreLogic’s quarterly measure of residential construction in the three months to September 2021 shows there was a national increase in costs of 3.8%. 

CoreLogic’s Research Director Tim Lawless said the surge in dwelling approvals, which peaked in March, was now progressing through to construction, causing wide spread demand for materials and trades.

This increased construction activity has coincided with a disruption to supply chains and had placed further pressure on the building industry, which was dealing with a severe shortage of materials.

"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," Mr Lawless said.

"There was a much bigger increase in our index when the GST was introduced, however outside of that structural adjustment this is by far the biggest quarterly change on record. This would be the largest market driven increase we’ve seen.

"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."

Building Approvals tapering off

Since peaking in March this year, new building approvals have declined, with Australia seeing housing approvals drop by 16% from August to September according to ABS data. 

Dwellings approved, states and territories, seasonally adjusted

Private Sector Houses Monthly Change  Total dwelling unit approvals Monthly Change
New South Wales 2,384 -13.9% 6,118 27.2%
Victoria 3,415 -18.0% 5,508 -15.7%
Queensland 1,954 -16.0% 2,875 -21.5%
South Australia 802 -26.8% 999 -22.7%
Western Australia 1,234 -12.2% 1,604 -20.9%
Tasmania na na 217 -11.8%
Northern Territory na na na na
Australian Capital Territory na na na na
Australia 10,168 -16.0% 18,090 -4.3%

Source: ABS

The Housing Industry Association also said the shortage of skilled trades is influencing this decline. 

The HIA Trades Index declined from -0.53 to -0.69 in the September quarter, with any number below zero indicating a skills shortage.

HIA Economist, Angela Lillicrap said the industry is experiencing the most significant skills shortage since 2003.

"Skilled trades continued to be in high demand as a record volume of detached home building and renovations is occurring," Ms Lillicrap said.

"All regions across Australia are reporting an acute shortage of skilled trades and all trades are in short supply."

Not a short term problem

Following the introduction of the HomeBuilder Grant in June last year and a subsequent surge in house approvals which peaked in March, Australian dwelling commencements have lifted by more than 50% over the year to June according to CoreLogic.

Although the pipeline of new housing supply is now easing, CoreLogic believes it will take time for the record number of approved houses to reach completion.

Mr Lawless said Australia is in the midst of an extended period of heightened residential construction activity, which is likely to have a significant impact on developers, builders and consumers.

"This doesn’t look like a short-term spike, the surge in construction costs is due to the amount of construction activity that’s been approved at a time when we can’t import more skilled labour and are facing significant supply chain disruptions," he said.

"This construction cost inflation could continue for another 12 to 18 months. 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."

Dwelling Approved.PNG

Source: ABS


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Aaron joined Savings.com.au in 2021. He is a finance journalist with a keen interest in property, the share market, and improving financial literacy in young Australians.

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