This article is from the Australian Property Journal archive
WHILE falling steel prices have seen building product price inflation decline to a three-year low, labour shortages and the accelerating prices of other materials continue to drive up construction costs.
According to Shane Garrett, chief economist at Master Builders Australia, the construction industry is still facing a “rocky road” as costs continue to surge, based on the latest ABS Producer Price Indexes.
Over the June 2023 quarter, the cost of building materials was up a further 0.6%, which while representing the smallest quarterly increase since the close of 2020, costs are still up 7.4% over the last 12 months.
The last year has seen significant drops in the costs of many materials, with the 10.0% annual drop in steel product prices—led by Melbourne with a 17.6% drop—and a 4.4% drop in the cost of structure timber.
“Steel and timber were the source of the biggest cost headaches over recent years – the fact that prices here are now in reverse is something of a relief,” said Garrett.
“However, the outlook is bumpy as even though the general trend in building materials prices is a favourable one, there has been a worrying acceleration in the cost of concrete, cement and sand products, a category where prices are now 16.2 per cent higher than a year ago.”
Over the quarter, total building construction prices were up 1.0%, for a 6.5% increase over the last year, driven in large part by the ongoing labour shortage.
“Latest inflation figures show that new dwelling costs rose by 7.8% over the past year, exacerbating the housing affordability crisis,” said Denita Wawn, CEO at Master Builders Australia.
“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.”
This as the cost of total house building output was up 7.3% annually, other residential building output was up 5.9% and non-residential building output was up 6.1%.
While according to CoreLogic’s Cordell Construction Cost Index, construction costs grew by 0.7% over the quarter, significantly under the decade average of 1.2%, after the first quarter returned a growth rate of 0.9%.
“With building and construction costs skyrocketing since the pandemic, it is important that government policies prioritise productivity improvements, reduce supply constraints and maintain flexibility,” said Wawn.
The latest data comes as one of Australia’s largest homebuilders, Metricon, terminates fixed-price customer contracts and has stopped paying commission fees to some agents.
