CoreLogic’s Cordell Construction Cost Index (CCCI) illustrated a significant increase in residential construction costs, growing 3.4% over the 12 months leading up to December.
This marks the most substantial annual rise since September 2023, which saw a 4% increase.
Despite a slow start in early 2024, the growth rate for construction costs has aligned with the pre-COVID decade average of 1.0% in the latter half of the year.
CoreLogic economist Kaytlin Ezzy (pictured above) highlighted the ongoing challenges within the construction sector.
“Residential construction companies continue to face profitability challenges with the CCCI up 30.8% since the onset of COVID,” Ezzy said.
She added that there are mixed signals in the market.
“Outside of compressed margins and continued labour challenges, the construction industry is also facing a looming shrinkage in the construction pipeline.”
Queensland experienced the most significant quarterly rise in construction costs at 1.2%.
Other states, including New South Wales, Victoria, and Western Australia, saw a 1.0% increase, aligning with the national average. South Australia reported the smallest growth at 0.9%.
Despite the increase in construction costs, new dwelling purchases have seen a decline, indicating a complex interplay of market forces.
“While deflation in new dwelling purchases seems contrary to increasing construction costs, the ABS noted this decline was primarily driven by builders offering discounts and promotional offers to entice business, putting further pressure on margins,” Ezzy said.
Over the year, new dwelling prices rose by 2.8%, surpassing the headline inflation increase of 2.3%.
John Bennett, CoreLogic’s construction cost estimation manager, provided insights into specific cost components.
“It was a bit of a mixed bag this quarter, with increases and decreases across different categories,” Bennett said. “What is constant is that labour continues to be a key driver of cost increases.”
He highlighted significant variances, such as a 15% decrease in concrete blocks and a 5% increase in plumbing PEX fittings and pipework.
While Sydney and Melbourne saw declines in dwelling values, regional areas in Queensland and Western Australia experienced increases.
These trends suggest regional disparities in how construction costs impact housing prices.
For more detailed insights and regional breakdowns, visit CoreLogic’s dedicated page on the Cordell Construction Cost Index.
