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Spike in demand leads to rise in construction costs according to CoreLogic figures

The cost of construction in Australia rose by 1 per cent over the December quarter, according to newly released figures from CoreLogic.

CoreLogic’s national Cordell Housing Index Price – which measures the rate of change of construction costs within the residential market and covers freestanding and semi-detached single and two-storey dwellings – found that costs increased by 1 per cent in the three months to December 2020, compared to a 0.6 per cent rise in the previous quarter.

The final index for 2020 showed residential construction costs were 3.6 per cent higher annually than in 2019.  

Meanwhile, figures showed the consumer price index (CPI) increased by 1.6 per cent over the September 2020 quarter, compared to a fall of -1.9 per cent over the previous quarter, which was largely a result of free child care and price falls in automotive fuels.

The seasonally adjusted ABS figures indicated the total number of dwellings approved rose by 2.6 per cent in November, while employment in the construction industry, which accounts for about 9.2 per cent of the total workforce, increased by 2 per cent over the three months to November 2020.

CoreLogic Executive Director of Research, Tim Lawless said the CHIP index was building momentum through the final quarter of 2020, which was in line with a surge in new residential house building activity.

He said with dwelling approvals for new houses currently at a record high, there was a surge in demand for residential construction materials, which was likely to increase pressure on costs. 

“The lift in residential construction costs is likely to flow through to higher prices for built residential products and also place upwards pressure on inflation where housing costs receive the heaviest weighting within the CPI ‘basket’ of goods,” Mr Lawless said.

“Although HomeBuilder is phasing out after March, it’s highly likely we will see a continuation in this trend towards higher residential construction costs. It will take some time for builders to work through the pipeline of house approvals that have surged through the second half of last year.”

The December quarter rise of 1 per cent was the highest quarterly rise of 2020.

Queensland had the highest monthly and annual growth of all the states through 2020, with its CHIP index rising sharply at 1.8 per cent over the December 2020 quarter, up from 0.6 per cent in the previous quarter. · 

Victoria had the second-highest growth in the CHIP index, at 1 per cent in the December 2020 quarter, with the New South Wales CHIP index rising by 0.7 per cent over the December 2020 quarter, or 3.1 per cent year-on-year; lower than the national growth rate of 3.6 per cent. · 

South Australia’s CHIP index increased by 0.7 per cent over the three months to December and annual growth was the lowest of all states, increasing by 3 per cent year-on-year.  The CHIP index for Western Australia rose by 0.7 per cent over the December quarter.

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Daniel Johnson

Daniel Johnson was the news editor for Elite Agent. He worked with the company from February 2020 to June 2020. For current stories, news alerts or pitches, please email editor@eliteagent.com.au.