Demand for building materials and tradespeople has driven up Construction costs by 2.5 per cent in the December quarter—the biggest lift in two decades.
According to the latest data from the Australian Bureau of Statistics, the latest increase means building costs are now up 6.5 per cent for the year to be at a 12-year high.
Construction costs have also grown by 5.7 per cent over the year while engineering costs have climbed by 4.7 per cent over the period to be at a three-year high.
The result was slightly above economists’ expectations, although Commsec chief economist Craig James said supply chain disruptions were likely to keep costs rising at least across the first quarter of the year.
“Choppy conditions presided over the construction sector in the December quarter, impacted by lockdowns, social distancing requirements, re-openings, labour shortages and higher costs,” James said.
“Conditions will return to some sense of normality in coming quarters.
“Certainly there are still plenty of projects to wade through, from renovations and new houses through to large-scale engineering projects.”
Corelogic head of research Tim Lawless echoed the sentiment, expecting growth in residential construction costs to remain above average over the coming quarter as supply chain disruptions persist.
“With such a large rise in construction costs over the year, we could see this translating into more expensive new homes and bigger renovation costs, ultimately placing additional upwards pressure on inflation,” Lawless said.
“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.”
Earlier this month, Corelogic’s Cordell Construction Cost Index—which measures change in construction costs within the residential market—indicated a rise of 1.1 per cent in the final three months of last year, down from the September quarter’s 3.8 per cent spike.
Cost increases have been primarily driven by a shortage of timber, mostly structural timber, while other segments of the market also remain volatile, with increasing pressure on steel and copper prices and plumbing supplies.
Sydney remains the most expensive place to build in Australia followed by Melbourne, Brisbane, Perth and Adelaide.
Construction work completed fell by 0.4 per cent over the recent quarter, to $53.5 billion, however, remains up 2.9 per cent on the same period a year ago.
Construction work in the ACT rose by 17.5 per cent across the quarter while New South Wales and South Australia were up 5 per cent and 1.8 per cent respectively.
The Northern Territory led the declines in construction work, down 68.4 per cent, with Victoria experiencing a 5.5 per cent dip and Queensland recording a loss of 2.6 per cent.
Home-building, a sector that was supercharged by the federal HomeBuilder incentive program and separate state government programs, has also slowed in the recent quarter with total residential building falling by 2.9 per cent and new home building down 1.9 per cent.
More than 135,000 applications were made for the federal government stimulus package, with Victoria taking up the lion’s share of about 30 per cent.
Article Source: www.theurbandeveloper.com