SA’s home building costs on the rise

Residential construction costs across South Australia are rising at a faster pace than those in Queensland, New South Wales, Victoria and Western Australia, new data reveals.

The southern state recorded the highest quarterly increase in CoreLogic’s cordell construction cost index (CCCI) across the five largest states, up 4.4 per cent over the three months ending September to a CCCI of 296.

It is much higher than the 1.5 per cent jump over the previous quarter.

Each index is based on a combination of labour, material, plant hire and subcontract services required to build.

Across the year, SA recorded 7.5 per cent growth in its CCCI, which is the largest annual increase since the 12 months to December 2012 (8 per cent).

It was also higher than the 3.1 per cent growth recorded during the same period last year.

Master Builders SA chief executive Will Frogley said a surge in demand for new homes coupled with supply chain disruptions and a shortage of materials were responsible for the increasing costs.

“The industry is flat out right around the country but particularly here in South Australia where our HomeBuilder per capita uptake was unmatched,” he said.

“Since COVID-19 South Australians have prioritised spending on their homes – the first-home buyer market, mid-range and luxury new builds and renovations are all strong.

“Employment growth has been strong but shortages of materials and trades are definitely a challenge right now.”

He said the pressure would slowly start to ease as more timber was shipped from Kangaroo Island and the domestic and international borders reopened.

“Whether it’s materials, trades or land, the best way to take the heat out of price increases is to increase supply,” he said.

“Master Builders SA has worked hard all year to boost supply and successfully lobbied for $15 million from the Federal Government and $3 million from the State Government to bring Kangaroo Island timber to the market.

“It’s important those programs are rolled out as soon as possible.”

Nationally, CoreLogic’s quarterly measure of residential construction costs revealed a 3.8 per cent increase in the three months to September to a CCCI of 318.6.

It is the country’s largest quarterly increase since the same quarter in 2000 when construction costs increased 7.2 per cent after the introduction of the GST

The annual CCCI increase was 7.1 per cent – the highest yearly growth rate since March 2005.

CoreLogic’s research director Tim Lawless said Australia was in the midst of an extended period of heightened residential construction activity, which was likely to have a significant impact on developers builders and consumers.

“This doesn’t look like a short-term spike, the surge in construction costs is due to the amount of construction activity that’s been approved at a time when we can’t import more skilled labour and are facing significant supply chain disruptions,” he said.

“This construction cost inflation could continue for another 12 to 18 months.

“It’s unlikely the industry can absorb a cost increase this significant into their margins and higher construction costs will ultimately be passed on to the consumer, placing further upwards pressure on the price of a new dwelling or renovation.”

Source