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Although new home sales registered a slight uptick over the past year, industry experts have raised concerns that home building is lagging behind the monthly levels needed to meet the nation’s housing target.
CoreLogic’s latest Cordell Construction Cost Index (CCCI) has shown that residential construction costs rose by 1 per cent over the September quarter, falling in line with the pre-COVID-19 decade average for cost increases.
The national CCCI, which measures the cost of building a typical new dwelling, increased off the top of a 0.5 per cent rise over the June quarter of 2023, marking the largest quarterly increase since the 1.9 per cent recorded over the three months to December 2022.
Over the 12 months leading up to September 2024, costs rose by 3.2 per cent, representing a 2.6 per cent increase compared to 12 months to June of this year, but down from the 4 per cent recorded this time last year.
Across the states, the quarterly change in CCCI was highest in Queensland, with the 1.1 per cent quarterly increase in construction costs marking a significant jump from the 0.3 per cent lift observed over the June quarter.
NSW and Western Australia both saw construction costs rise by 1 per cent, which aligned with the national growth rate.
Contrastingly, Victoria and South Australia tied for the smallest quarterly increases, with each state recording 0.8 per cent increases over the quarter.
Discussing these findings, CoreLogic economist Kaytlin Ezzy said the data would “likely put additional pressure on the federal government’s target of 1.2 million new homes”.
“With the official start date for the 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,” she said.
Over the year to June, approximately 176,000 dwellings were completed, marking a 26.6 per cent shortfall from the 240,000 new homes required annually to fulfil the national housing target.
In August, national monthly dwelling approvals registered -17.9 per cent under the decade average, and -30 per cent below the 20,000-per-month target required to achieve the target.
Despite 250,000 homes remaining within the construction pipeline nationally, Ezzy commented that the “sluggish flow of new dwelling approvals suggests a shortfall of projects once the backlog is worked through”.
Owner-occupier activity rises despite price increases
CoreLogic noted that the latest consumer price index (CPI) data from the Australian Bureau of Statistics (ABS) shows a 1.1 per cent increase in new dwelling purchases by owner-occupiers during the June quarter.
The data also displayed strong rises in new dwelling prices in Perth and Adelaide over the period, indicating higher demand for new homes, and greater labour and material costs in the two cities.
Ezzy described the recent re-acceleration in the CCCI as “concerning for the new homes component of the CPI” due to the two series’ strong correlation, and noted that the shift could “partially offset the impact of slowing rent growth on housing inflation”.
The economist also said the increase would be “unwelcome news for builds, who are still working to repair profit margins”.
“Although the latest quarterly rise aligns with the pre-COVID decade averages (1 per cent), overall construction costs have surged 29.5 per cent, putting significant pressure on the feasibility of many projects,” Ezzy said.
New home sales stagnate over September
The Housing Industry Association’s (HIA) latest New Home Sales Report revealed that home sales in September of this year did not change from August, resulting in sales over the past 12 months registering 8.6 per cent higher than the previous year.
Within the states, HIA economist Maurice Tapang commented that the “increase in sales in South Australia, Western Australia and Victoria offset the monthly decline in sales in NSW and Queensland in September”.
The economist noted that “consumer confidence is slowly trickling back into the Australian economy”, but emphasised that this sentiment will “take time to trickle through new home building, as consumers get greater certainty with interest rates and economic conditions”.
New home sales over the September quarter for 2024 registered 3.9 per cent lower compared to the same time in the previous year, which Tapang highlighted was distorted by the strong pull forward in sales in NSW during September 2023.
In the September quarter of 2024, Queensland reported the highest annual sales increase of 50.2 per cent compared to the same time the year prior, followed by South Australia’s sales increase of 18.5 per cent over the same period.
The other states all reported declines in sales, with NSW leading at -25.5 per cent, followed by Western Australia at -18.4 per cent, and Victoria at -11.7 per cent.
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