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Building material inflation slows

Building materials inflation hits three-year low, but construction costs continue to face a rocky road ahead

Plunging steel prices have helped bring building product price inflation to its lowest in almost three years, with the June 2023 quarter seeing the cost of building materials rise 0.6 per cent – the smallest quarterly increase since the end of 2020, Master Builders Australia says.

Melbourne has seen a 17.6 per cent drop in the price of steel products in the year to June 2023, with Australia overall seeing a price drop of 10 per cent.

However, a bumpy road remains with the accelerating inflation of other materials and labour shortages continuing to drive up the cost of building.

While there has been a slowdown in the overall cost of home building materials, there has still been a sizeable increase of 7.4 per cent over the past 12 months.

“The past year has seen sizeable drops in the cost of several crucial building materials,” Master Builders Australia chief economist Shane Garrett says.

“The 10 per cent drop in steel product prices over the past year was the most significant change, with a welcome reduction of 4.4 per cent in the cost of structural timber also occurring.”

Concrete, cement and sand products are showing prices 16.2 per cent higher than a year ago, while ceramic products are up 10.6 per cent, plumbing products are up nine per cent and electrical equipment is up seven per cent.

“Total building construction prices rose 1.0 per cent in the June quarter and 6.5 per cent over the past 12 months, predominately driven by labour shortages,” Garrett says.

The surge in building costs in recent years has taken a heavy toll on the building cost of new homes and infrastructure across Australia.

“Latest inflation figures show that new dwelling costs rose by 7.8 per cent over the past year, exacerbating the housing affordability crisis,” Master Builders Australia CEO Denita Wawn says.

“The rental market has also been hit hard by the surge in new home building costs. During the June 2023 quarter, rental inflation hit its fastest pace since 1988.

“With building and construction costs skyrocketing since the pandemic, it is important that government policies prioritise productivity improvements, reduce supply constraints and maintain flexibility.”

The federal government has since proposed industrial relations reforms that will have “damaging consequences for the industry and further impact the increasing costs of construction”, Wawn says.

The Producer Price Indexes for June 2023 can be found here.

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