Building Costs Climb Again, Threatening Housing Targets

The cost of building homes has risen over the past quarter across Australia, according to CoreLogic’s Cordell Construction Cost Index (CCCI).

Costs increased by 1 per cent over the third quarter compared to the previous quarter.

It is a substantial rise—in comparison, costs increased by 0.5 per cent across the second quarter.

During the 12 months to September, costs rose 3.2 per cent compared to 2.6 per cent over the 12 months to June, 2024.

The costs were down compared to the 4 per cent increase over the 12 months to September, 2023.

CoreLogic economist Kaytlin Ezzy said increased costs would affect the national target of 1.2 million new homes.

“With the official start date for the Federal government’s target for 1.2 million new well-located homes over five years kicking off in July, the recent re-acceleration of the CCCI could put additional pressure on an already difficult-to-achieve goal,” Ezzy said.

“Over the year to June, approximately 176,000 dwellings were completed: 26.6 per cent below the 240,000 annually needed to fulfil the target.

“While 250,000 homes remain within the construction pipeline nationally, the sluggish flow of new dwelling approvals suggests a shortfall of projects once the backlog is worked through.”

National monthly approvals fell below the decade average in August by 17.9 per cent and were 30 per cent under the 20,000 a month needed to hit the 1.2 million new homes target. 

The Australian Bureau of Statistics reported that 44,853 homes had been completed during the second quarter of 2024.

Costs of building new homes

_{Source: CoreLogic Cordell Construction Costs Index, Q3 2024} 

Queensland recorded the highest quarterly increase in construction costs at 1.1 per cent for the period, compared to 0.3 per cent of the previous quarter.

In NSW and Western Australia, construction costs increased 1 per cent over the third quarter, while Victoria and South Australia had for the lowest quarterly increase at 0.8 per cent.

The cost of construction materials stabilised over the quarter, according to CoreLogic construction cost estimation manager John Bennett. 

“This quarter has shown no standout specific trends in the market for construction cost materials,” Bennett said.

“We fully expect this to continue for the coming months.” 

Costs are being passed to the homebuyer with the ABS’s Consumer Price Index data rising 1 per cent over the second quarter with new home purchases by owner-occupiers increasing 1.1 per cent. 

“Residential building costs make up the largest share of the housing component of the consumer price index,” Ezzy said. 

“As a forward indicator, the recent re-acceleration in the CCCI is concerning for the new homes component of the CPI, as the two series are highly correlated.

“Additionally, the increase will be unwelcome news for builders, who are still working to repair profit margins.  

“Although the latest quarterly rise aligns with the pre-Covid decade average (1 per cent), overall construction costs have surged 29.5 per cent, putting significant pressure on the feasibility of many projects.”

The CCCI is based on building models that represent a three-bedroom, two-bathroom Australian home built with materials, practices and applications that adhere to what is considered as standard building practice. 

It does not represent bespoke or specialised style construction or materials and does not consider delays or associated costs for build times as part of the cost calculations.

The models consider labour as 40 per cent of the cost, plants and preliminary costs each as 5 per cent of the total cost and materials as 50 per cent of the cost.