Construction costs rise at the fastest rate in 21 years

The cost to construct a new home is rising at the fastest rate since 2001, putting increased pressure on builders, new home buyers and renovators.

CoreLogic’s Cordell Construction Cost Index (CCCI) for the first quarter of 2022 showed national residential construction costs increased 9 per cent over the 12 months to March, the highest since the introduction of GST in March 2001 when price rises reached 10.2 per cent.

The CCCI quarterly growth rate increased in Q1 2022 to 2.4 cent, with South Australia claiming the steepest increase in construction costs at 2.5 per cent. 

New South Wales, Victoria and Western Australia each rose 2.4 per cent, in line with the national growth rate, while Queensland recorded the lowest quarterly increase at 2.2 per cent.

CoreLogic Construction Cost Estimation Manager, John Bennett said timber, metals and imported products drove the sharp rise in construction costs.

“Timber costs continue to rise, with cladding, decking and other timber items affected,” Mr Bennett said.

“Steep rises in metal prices are also now flowing through to the market, with structural steel, fixings and metal components hit hard.”

Mr Bennett said the cost increases were unlikely to ease in the short-term.

“We continued to see volatility in the rest of the market, with imported products the most vulnerable due to elevated shipping costs,” he said.

“Rising fuel costs are also on the radar and we have continued to see further increases in the cost of other materials.”

Construction costs had started to ease in the last quarter of 2021, when the CCI Index climbed 1.1 per cent, before accelerating again.

Over the past year, construction costs have risen the most in South Australia, at 9.8 per cent, followed by 9.7 per cent in Western Australia, 8.8 per cent in Victoria and NSW and 8.7 per cent in Queensland.

CoreLogic Research Director Tim Lawless said record high construction cost increases would continue to cause housing issues.

“Construction cost growth adds a further element of uncertainty to new building projects and renovations as well as inflationary pressures to the economy,” Mr Lawless said. 

“While the most obvious impact from high residential building costs are with builders, new home buyers and renovators, another important consideration is the sum insured by home owners.

“With construction costs up more than 25 per cent over the past five years, it’s important for home owners to reassess their insurance terms and make sure they are adequately covered should they need to make a claim.” 

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Rowan Crosby

Rowan Crosby is a freelance journalist specialising in finance and real estate.