The latest Cordell Construction Cost Index (CCCI) has recorded a growth rate of 0.8 per cent in the cost to build a typical new dwelling over the three months to December.
According to CoreLogic, this has marked a reversal in the easing trend observed over the previous four quarters, when the quarterly CCCI went from 4.7 per cent in 3Q22 to 0.5 per cent in 3Q23, while the annual growth rate for the 2023 calendar year was 2.9 per cent.
However, CoreLogic has suggested that this is not a new surge in construction costs, rather a return to trend as CoreLogic economist Kaytlin Ezzy noted that the latest growth rate still remains 20 bps below the pre-pandemic decade average of 1 per cent.
“While up over the quarter, the annual change in residential construction costs continued to ease as larger quarterly increases fell out of the annual calculation,” Ms Ezzy said.
The 2.9 per cent annual rise was also the smallest annual rise in the national CCCI since March 2007 when it rose by 2.7 per cent and sits below the pre-COVID-19 decade average of 4 per cent.
“This suggests that growth in construction costs [has] normalised after recording a recent peak of 11.9 per cent over the 12 months to December 2022, albeit at a higher level,” Ms Ezzy added.
“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.”
Commenting on the outlook for construction costs over 2024, Ms Ezzy stated the outlook is “uncertain” as several factors stand to possibly influence the pace of growth.
“Although national dwelling approvals have risen from a recent low of 12,185 in January, the latest data from the ABS showed that dwelling approvals remained -15.8 per cent below the decade average in November at around 14,500,” Ms Ezzy said.
She added that while there are a number of projects still moving through the construction pipeline, the stillness in approvals could result in a “shortfall in new projects, which would help keep growth in building costs low, due to greater capacity in the construction sector”.
Furthermore, with possible rate cuts off the back of easing inflation beginning to manifest, there could be renewed housing demand for both established and new dwellings, according to Ms Ezzy.
“Regardless, the normalisation in CCCI growth will help provide some certainly for builders, insurance companies and home owners alike,” she said.
Indeed, recent Australian Bureau of Statistics (ABS) data has revealed a decade low number of new homes being built, which has been flagged by Housing Industry Association (HIA) senior economist Tom Devitt, who warned that the lack of housing commencement will lead to the government being unable to reach its 1.2 million housing target.
[RELATED: Dwelling commencements fall to decade low]
