Still scarred by the COVID experience, some builders are fearful the price of building materials could soon get out of hand.
The recent release of Core Logic’s Cordell Construction Cost Index (CCCI) showed residential construction costs grew 3.4% over the 12 months to December 2024.
That has sent shivers down the spines of builders as it’s the largest annual increase in construction costs since the year to September 2023 (4.0%). It shifts the annual trend higher and has many worried about where costs are headed.
In a result which will be no surprise to builders in the Sunshine State, Queensland once again recorded the largest quarterly increase in construction costs (1.2%).
CoreLogic Economist Kaytlin Ezzy said the data is a challenge for an industry that is already struggling.
“Outside of compressed margins and continued labour challenges, the construction industry is also facing a looming shrinkage in the construction pipeline,” Ms Ezzy said.
“Building commencements have trended lower, with ABS data for new dwelling commencements over the year to June 2024 at 10-year lows.
“These factors combined have contributed to an increasing number of liquidations, with 2,832 construction companies becoming insolvent in the 2023-2024 Financial Year, representing the greatest proportion of company collapses.”
“Although up over the year, dwelling approvals over the 12 months to November also remained -7.1% below the decade average, suggesting this shortfall of new projects entering the construction pipeline may continue for some time.”
CoreLogic Construction Cost Estimation Manager John Bennett said movements in the costs for builders were not uniform.
“It was a bit of a mixed bag this quarter,” Mr Bennet said.
“Labour continues to be a key driver of cost increases, plumbing PEX fittings and pipework were up by 5 per cent while concrete blocks actually decreased by 15 per cent.”
The overall costs continue to move upwards though, which has many builders watching closely tomorrow’s decision on interest rates.
Director at Accent Estimating Moises Lopez said while it’s difficult to forecast where prices will end up, the biggest factors will be interest rates and building activity.
“With some news of interest rates decreasing at the next RBA meeting, that could increase demand, because higher interest rates have reduced demand for building, and in my experience, we have seen a lot less new builds.
“I believe if interest rates decrease, then that could increase building activity, because inflation currently is at 2.3 which is within the target of two or 3 per cent target.
“There’ll be additional building and that should increase costs slightly, either in line with inflation or a little bit more.
“I’m noticing a lot more developers currently looking at sites and doing a lot of feasibility, more than before.
“I believe that developers are getting ready for the next cycle.”
If he’s right, the prices for building materials could be expected to rise at a much faster rate.
It will mean more work to go around, but for those stung by the COVID increases, factoring potential price increases into contracts will be more important than ever.
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