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After years of COVID-19-induced hikes, the cost of building a new home appears to finally be stabilising.
The Cordell Construction Cost Index (CCCI) recently rose 0.8 per cent over the last quarter of 2023 – news that could be alarming to many, who are already grappling with sky-high construction costs following supply chain disruptions caused by COVID-19 and other pandemic-related shifts in resourcing.
But according to CoreLogic economist Kaytlin Ezzy, the more recent price lift is no cause for concern, as construction costs are still on a path to stabilise as the year progresses.
“Reacceleration is more a return to trend rather than a new surge in construction costs,” Ms Ezzy explained.
“Over the quarter, the annual change in construction costs continued to ease as larger quarterly increases fell out of the equation.”
The latest quarterly rise brings the total annual growth of construction costs for 2023 to a total of 2.9 per cent. This is a far cry from the double-digit annual growth that was seen in years prior, and is below the pre-COVID-19 average of 4 per cent per year.
“Growth in construction costs have normalised after recording a recent peak of 11.9 per cent over the 12 months to December 2022,” said Ms Ezzy.
“Although 26.6 per cent higher than at the onset of the pandemic, the recent surge in CCCI is below the increases seen across national house values, with CoreLogic’s Home Value Index rising 36.5 per cent over the same period.”
Despite the overall easing in price growth, CoreLogic construction cost estimation manager John Bennett noted that there is no unanimous trend amongst all suppliers.
“Depending on the supplier, both increases and decreases were recorded,” said Mr Bennett. “This tells me suppliers are either bringing their product pricing back down to acceptable levels from the increases during the COVID period, or they are increasing to set up for the year ahead.”
He also revealed that price rises varied from state to state, with higher growth rates recorded in NSW, Victoria and Western Australia; and lower rates seen in South Australia and Queensland.
Looking forward into 2024, the outlook for construction costs is brighter than last year, but full normalisation is by no means certain.
Ms Ezzy said: “Although a number of projects are still moving through the construction pipeline, the recent lull in approvals could result in a shortfall in new projects,” she said, explaining that this could potentially “help keep growth in building costs low”.
Nevertheless, Ms Ezzy warned that “it’s unlikely we’ll see any declines in construction costs” in 2024.
“Nevertheless, the normalisation in CCCI growth will help provide some certainty for builders, insurance companies and home owners alike,” she stated.
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