According to CoreLogic's Cordell Construction Cost Index (CCCI) after years of rapid growth, residential construction costs have stabilized. The Q2 2024 national CCCI showed a 0.5% rise, down from 0.8% in Q1.
Over FY24, costs increased by 2.6%, the smallest annual rise since March 2002, and well below the pre-COVID decade average of 4.0%.
CoreLogic Research Director Tim Lawless noted that while quarterly growth in costs is 50 basis points below the pre-COVID average, prices remain high. Building or renovating is still almost 30% more expensive than pre-COVID levels.
Lawless highlighted that the slower growth in construction costs, along with higher housing prices, might improve builder profit margins and boost confidence in pricing for new projects.
State-wise, quarterly CCCI changes ranged from 0.3% in Queensland to 0.6% in NSW and Victoria.
According to John Bennett, CoreLogic's Construction Cost Estimation Manager, attributed the overall de-escalation to reduced volatility in material prices, especially timbers and metals. However, labor costs remain high and contribute significantly to project expenses.
May saw a 5.5% rise in building approvals, but Lawless cautioned this does not yet indicate a turning point in construction activity, as approvals remain near decade lows and many projects are still in progress. The following ABS graph of unit approvals (includes houses, apartments and townhouses) shows the last time approvals was this low was in Q1 2013.
The slowing growth in construction costs will be a welcome relief for many builders, providing a boost in confidence to increase market supply. However, rising land prices and restrictions on selling to investor builders continue to restrict rental supply, especially as many estates limit sales to non-investor buyers.
As a buyer’s agent trying to source land in Brisbane I am seeing a big demand coming from home buyers, investors and builders. Developments are selling out before land registration is made available with each new stage prices rising.
Developers are experiencing delays from local government and for services to be completed which is choking the supply of new land in South East Queensland.
If the Queensland government expects to meet its target of 1 million homes by 2046, it needs to address the inertia within its own departments and provide a path of less resistance for the private sector.
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