Are Australia’s skyrocketing construction costs finally settling down?

It follows a 0.8 per cent rise recorded in the first quarter of 2024.

It means that during FY2024, construction costs only lifted by 2.6 per cent over the 12 months – the smallest annual rise in costs since March 2002.

It also puts the last year “significantly below the pre-COVID decade average of 4 per cent”.

For Tim Lawless, research director at CoreLogic, it means construction costs have “finally returned within normal margins”.

The reprieve does come with a caveat: the price of construction is still elevated. Lawless pointed out that “building or renovating remains almost 30 per cent more expensive now than pre-COVID after an extended period of escalating costs”.

Even so, Lawless expects that the latest findings “will gradually help to repair builder profit margins and flow through to providing more confidence around pricing for new builds and renovations”.

Nationally, consumer price index (CPI) was up 1 per cent in the March quarter – higher than the 0.8 per cent rise in construction costs.

Given construction costs saw even less of a climb in the June quarter, Lawless expects that “it is highly likely this level of growth will be well below CPI when the index is released later this month”.

Given residential building costs are a key data point for the housing component of the CPI, Lawless said the slowdown in residential construction costs “is a positive outcome for inflationary pressures”.

CoreLogic construction cost estimation manager John Bennett has flagged that recent price stability comes from reduced price volatility for materials.

Categories including timbers and metal products, which are important for framing, trusses, floors, cladding and roofing of residential construction, have seen price reductions.

Other costs are still compounding, with Bennett pointing out that “sustained issues across the supply chain, which plagued the industry throughout COVID have largely resolved but costs for labour, for example, remain elevated and contribute significantly to any residential project”.