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Building construction costs increased by 3.4 per cent in 2024, marking the largest annual rise since September 2023 and further tightening the property market, new data shows.
New data from CoreLogic showed that residential construction costs increased by 3.4 per cent in 2024, with the latest quarterly growth of 1 per cent, pushing the annual trend upward.
According to CoreLogic’s latest Cordell Construction Cost Index (CCCI), 2024 marked the largest annual growth in construction prices since September 2023, when the industry recorded a 4 per cent rise.
The quarterly CCCI report tracks price changes in specific sectors of the Australian construction industry by using daily cost surveys, as well as fluctuations in labour, materials, plant hire and subcontract services.
While construction cost growth moderated below 1 per cent in 2023 and the first half of 2024, costs rose by 1 per cent in the September and December 2024 quarters, aligning with the pre-COVID decade average quarterly increase.
CoreLogic economist Kaytlin Ezzy said the latest data represents another challenge for an industry that is already struggling.
While the annual rate of construction cost increases remains 40 basis points below the pre-decade average of 4 per cent, Ezzy noted that the increase will further impact builders already on tight margins.
“Residential construction companies continue to face profitability challenges with the CCCI up 30.8 per cent since the onset of COVID,” Ezzy said.
Among the states, Queensland saw the largest quarterly increase in construction costs, rising by 1.2 per cent, up from 1.1 per cent in the previous quarter and surpassing the national growth rate of 1 per cent.
This marks the state’s highest quarterly increase in the CCCI since the December 2022 quarter, which recorded a 2 per cent growth and is 10 basis points above the pre-COVID decade average of 1.1 per cent.
Over the year to December, Queensland’s construction costs grew by 3.3 per cent, up from 2.2 per cent for the 12 months to September.
NSW, Victoria and Western Australia all saw construction costs rise 1 per cent over the three months to December, which aligns with the national growth rate.
On the other hand, South Australia recorded the smallest increase, up 0.9 per cent over the quarter, following a 0.8 per cent increase over the three months to September.
Construction costs in South Australia rose by 2.9 per cent over the year to December, up from a 2.5 per cent increase for the 12 months to September, bringing the rate back in line with the pre-COVID decade average of 0.9 per cent.
CoreLogic construction cost estimation manager, John Bennett, said the construction costs were driven by different factors every quarter.
“It was a bit of a mixed bag this quarter, with increases and decreases across different categories. What is constant is that labour continues to be a key driver of cost increases,” Bennett said.
Recent Australian Bureau of Statistics (ABS) Labour Force data showed that construction sector job vacancies were up 33.5 per cent from the pre-COVID period January 2020 to November 2024, putting extra pressure on Australia’s housing target of 1.2 million new homes over five years.
The Housing Industry Association estimated that an additional 83,000 skilled workers will be needed to deliver the government’s housing target.
In addition to squeezed margins and ongoing labour challenges, Ezzy noted that the construction industry is also grappling with a potential decline in the construction pipeline.
ABS data for new dwelling commencements showed building construction over the year to June 2024 is at 10-year lows.
“These factors combined have contributed to an increasing number of liquidations, with 2,832 construction companies becoming insolvent in the 2023–24 financial year, representing the greatest proportion of company collapses,” Ezzy said.
“Although up over the year, dwelling approvals over the 12 months to November also remained -7.1 per cent below the decade average, suggesting this shortfall of new projects entering the construction pipeline may continue for some time.”
The latest ABS data on building approval showed that in November 2024, the total number of dwellings approved fell by 3.6 per cent to 14,998.
The Cordell team noted that the latest monthly consumer price index results supported the trend, with new dwelling purchase subcategories recording a -0.6 percent decline in November.
Over the year to November, new dwelling prices increased 2.8 per cent, compared to a 2.3 per cent increase in headline inflation.
“While deflation in new dwelling purchases seems contrary to increasing construction costs, the ABS noted this decline was primarily driven by builders offering discounts and promotional offers to entice business, putting further pressure on margins,” Ezzy said.
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