But annual growth rate stays under 10-year pre-pandemic average
Construction costs in Australia continued to increase during the September quarter, with the Cordell Construction Cost Index (CCCI) from Cotality recording a 0.6% rise.
The latest rise represents a slight acceleration compared to the previous two quarters, which saw increases of 0.5% and 0.4% respectively. Over the year to September, construction costs grew by 2.5%, down from 3.2% in the prior 12-month period.
According to Eliza Owen, head of research at Cotality, annual growth in building costs has remained below the pre-pandemic decade average. “Over the past two years, the annual growth in home building costs has remained below the pre-COVID decade average of 4%,” she said. “While underlying construction costs remain high, the rate of annual increases has not been this low since March 2002.
“Western Australia bucked the trend recording the highest quarterly increase at 1.3%, nearly double the 0.7% rise recorded in the previous quarter. This has pushed annual cost increases in the state to 3.6%, up from 2.8% in the year to September 2024.”
Rising construction costs can increase the overall price of new homes, leading to higher loan amounts for borrowers. This may affect affordability, reduce borrowing capacity, and increase risk for lenders. Elevated costs can also slow new housing supply, impacting market activity and potentially tightening credit conditions for both builders and buyers.
The September quarter saw price increases across most building materials, with metal and related products experiencing the largest gains. “Structural timber remained relatively stable, with only minor increases affecting select items,” said John Bennett (pictured right), construction cost estimation manager at Cotality.
“In contrast, plasterboard and plaster products experienced price declines, particularly in South Australia and Western Australia. At the same time, the new financial year has prompted price updates from many vendors, adding to cost pressures.”
Labour costs also rose over the quarter, influenced by higher dwelling approvals and continued demand for skilled trades. National dwelling approvals increased by 4.3% in the three months to August compared to the previous quarter.
“The nearly 40% rise in cumulative costs since the pandemic continues to place sustained pressure on liquidity and project feasibility,” Bennett said.
“Meanwhile, the ongoing shortage of skilled trades remains a persistent challenge of the industry. This quarter’s labour cost increases also reflect the impact of annual enterprise wage agreements coming into effect.”
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