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Construction material costs stabilising

CoreLogic reports that construction costs are continuing to normalise, though they remain significantly higher than before COVID-19

With detached dwelling approvals hitting a 12-year low in January, growth in national construction material costs continued to stabilise in the first quarter of 2024, CoreLogic’s Cordell Construction Cost Index (CCCI) shows.

The Q1 2024 national CCCI, which tracks the cost to build a typical new dwelling, recorded a 0.8 per cent rise, on par with the increase seen over the December quarter last year.

This stabilisation in the quarterly trend saw the annual change in the CCCI ease to 2.8 per cent – the smallest annual rise since the year to March 2007 (2.7 per cent) and well below the pre-COVID decade average (four per cent).

CoreLogic economist Kaytlin Ezzy says while growth in national construction costs have continued to ease from the highs seen through the pandemic, price levels remain elevated.

“The strong fluctuations seen in building material costs over the past few years have levelled out and are now within normal margins,” Ezzy says.

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“No clear trend was seen in timber or metal materials, with price changes normalising. Current building costs are still 27.6 per cent higher than at the start of the pandemic, which is likely putting significant pressure on builder’s profit margins.”

Ezzy says construction costs are expected to remain within usual margins in the coming year.

“National dwelling approvals have held well below average in 2023 and are continuing to do so into 2024, helping to dampen the growth in construction costs,” she says.

“Monthly detached dwelling approvals, reported by the ABS, fell to the lowest monthly count since June 2012 in January at 7,701 and remained -13.5 per cent below the decade average in February.

“However, the construction pipeline remains bloated, with ABS building activity data showing around 255,000 dwellings approved but not yet completed, which should help keep builders busy throughout 2024,” she says.

State breakdown

The quarterly change was reasonably aligned across the states, with Queensland and South Australia both recording an acceleration in growth, up 0.7 per cent over the three months to March. Meanwhile, New South Wales and Victoria pulled back in growth, both up 0.9 per cent, while the quarterly change in Western Australia held steady (0.7 per cent).

The CCCI for NSW rose 0.9 per cent, down 10 basis points from the one per cent rise seen over the December quarter, bringing the latest rise in line with the pre-COVID decade average. Annually, NSW saw the CCCI increase by 3.1 per cent over the 12 months to March, on par with the previous reading in the 12 months to December.

Victoria’s CCCI rose 0.9 per cent over the quarter, down 30 basis points from the 1.1 per cent increase over the three months to December. While easing slightly over the quarter, the Victorian CCCI increased by 3.1 per cent over the year to March 2024, up from 2.9 per cent over the year to December, which was the lowest annual change since December 2016 (2.6 per cent).

Queensland’s recorded a 0.7 per cent rise in construction costs over the March quarter, after showing minimal growth in the December quarter last year (0.1 per cent). Annually, QLD’s CCCI increased by 2.3 per cent, down from 2.8 per cent over the 12 months to December. This is the lowest annual change in construction costs across Queensland in almost 14 years.

In WA, construction costs rose 0.7 per cent over the quarter, in line with the rise seen in Q4 2023. Annually, WA’s CCCI increased by 2.1 per cent, which was the lowest annual change in construction costs in almost seven years.

SA’s CCCI increased by 0.7 per cent, up from 0.5 per cent in Q4 2023. This took SA’s annual change in construction costs to 2.6 per cent.

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