Housing construction costs 'explode' : CoreLogic

author-avatar By
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


Advertisement

Buying a home or looking to refinance? The table below features home loans with some of the lowest interest rates on the market for owner occupiers.

Lender
Advertised rate Comparison rate Monthly repayment Rate TypeOffsetRedrawOngoing FeeUpfront FeesLVRLump Sum RepaymentAdditional RepaymentsPre-approval

VariableMore details
GET A FULL OFFSET ACCOUNT FOR NO EXTRA COST

Low Rate Home Loan - Prime (Principal and Interest) (Investment) (LVR < 60%)

  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services
GET A FULL OFFSET ACCOUNT FOR NO EXTRA COST

Low Rate Home Loan - Prime (Principal and Interest) (Investment) (LVR < 60%)

  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services
VariableMore details
REFINANCE IN MINUTES, NOT WEEKS

Nano Home Loans Variable Investor, Principal and Interest (Refinance Only)

  • Refinance only. Fast online application
  • No Nano fees. Free 100% offset sub account
  • Mobile app, Visa debit card & instant payments
REFINANCE IN MINUTES, NOT WEEKS

Nano Home Loans Variable Investor, Principal and Interest (Refinance Only)

  • Refinance only. Fast online application
  • No Nano fees. Free 100% offset sub account
  • Mobile app, Visa debit card & instant payments
VariableMore details
AN EASY ONLINE APPLICATION

Yard Investment Loan (Principal and Interest) (LVR < 80%)

  • No application fee
  • Unlimited additional repayments
  • Unlimited free redraws
AN EASY ONLINE APPLICATION

Yard Investment Loan (Principal and Interest) (LVR < 80%)

  • No application fee
  • Unlimited additional repayments
  • Unlimited free redraws
VariableMore details
FREE REDRAW FACILITY

Smart Investor Home Loan (Principal and Interest) (LVR < 80%)

  • Option to add an offset for 0.10%
  • Fast turnaround times, can meet 30 day settlement
  • No on-going or monthly fees
FREE REDRAW FACILITY

Smart Investor Home Loan (Principal and Interest) (LVR < 80%)

  • Option to add an offset for 0.10%
  • Fast turnaround times, can meet 30 day settlement
  • No on-going or monthly fees

Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to made on variables as selected and input by the user. All products will list the LVR with the product and rate which are clearly published on the Product Provider’s web site. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. Rates correct as of November 27, 2021. View disclaimer.



Image by Vitolda Klein via Unsplash

Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered. Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site. Savings.com.au, yourmortgage.com.au, yourinvestmentpropertymag.com.au, and Performance Drive are part of the Savings Media group. In the interests of full disclosure, the Savings Media Group are associated with the Firstmac Group. To read about how Savings Media Group manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.

Latest Articles

author-avatar
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.

Be Savings smart.
Subscribe for free money newsletters.

By subscribing you agree to the Savings Privacy Policy