Construction costs ease across Australia as key materials prices stabilise

Construction cost increases have fallen to their lowest point since the start of the pandemic according to the latest data from CoreLogic.

The property data provider’s Cordell Construction Cost Index (CCCI) shows a growth rate of 0.7 percent over the June quarter, which is the lowest figure recorded since September 2020.

The CCCI tracks the cost of building a typical three-bedroom, two-bathroom new home in Australia.

While there was variation and volatility across building product types, CoreLogic Construction Cost Estimation Manager John Bennett said steel and timber prices had begun to stabilise. It’s a trend he said was likely to continue.

“There’s been a significant drop off in dwelling approvals in the year to April, which will flow through to prices,” Mr Bennett said. “As the level of residential construction work reduces, pressure on material costs and labour supply is likely to reduce further.”

The price of timber has escalated sharply in recent years as local stocks dried up following the 2019 bushfires and demand for materials increased following the Federal Government’s HomeBuilder initiative. It’s a similar story with steel, which has been impacted by the war in Ukraine, the strength of the Australian dollar and supply chain issues.

However, there appears to be some relief on the horizon with the latest national figures well below the 1.2 percent decade average, CoreLogic data shows, representing a further softening from the 0.9 percent growth rate during the first quarter of this year.

CoreLogic head of research, Eliza Owen, said the figures bode well for a further reduction in the rate of inflation.

“The cost of new owner occupier dwelling purchases comprises the largest weighting in the CPI ‘basket’, which means the ongoing reduction in the CCCI is good news, potentially signalling lower inflation numbers,” she said.