Australian construction costs continue to go up - and up | Kanebridge News
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Australian construction costs continue to go up – and up

Victoria has been worst hit by rising prices over the past year, with no end in sight

By Robyn Willis
Fri, Oct 7, 2022 10:30amGrey Clock 2 min

National construction costs are continuing to climb at record rates, CoreLogic reports.

The Cordell Construction Cost Index showed residential construction costs increased by 11 percent over the 12 months to September 2022 across the country, compared with a 10 percent rise recorded over the past 12 month to June this year.

The rising costs, especially for timber and metals, were impacting on structural stages of housing construction, such as framing and reinforcing, CoreLogic construction cost estimation manager, John Bennett said.

“This quarter has also shown a larger increase in the cost of wall linings, including plasterboard and fibre cement, which previously had been relatively stable,” he said. “It will cost you more to get into your house too, with the price of doors showing a sharp rise in the last quarter.”

Queensland was the worst affected state this quarter, recording a 5.8 percent increase, followed by Victoria at 5.6 percent and NSW at 4 percent. Western Australia saw the lowest quarterly increase at 3.3 percent.

Victoria has experienced the highest rise in construction costs over the past 12 months, recording a 12.3 percent increase to September this year.

CoreLogic research director Tim Lawless said there was no easy answer to the pressures of rising material costs and the COVID-related backlog of residential construction that is still apparent. Recent weather events, and the subsequent damage to homes that now required repairs, would only add to the squeeze on resources in the building industry, he said.

“There’s no quick solution for providing additional materials and fuel costs remain elevated. All of these factors have an impact and are likely to push building costs higher for some time yet,” Mr Lawless said.

“Persistently high construction costs are clearly adding to inflationary pressures as well, with the price of new dwellings one of the most significant contributors to the June quarter inflation reading.”  

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Highest property values, biggest dip the next. That’s the outcome for Australia’s northernmost capital on the east coast, with Brisbane property values recording their largest and fastest decline, data from Corelogic reveals.

The fall comes just seven months after values hit their peak after a population surge driven by the pandemic saw an increase of 43 percent. Home values hit a record high on June 19, 2022 but have since declined 10.9 percent, in parallel with eight consecutive interest rate rises since April last year.

Historically, peak-to-trough declines in Brisbane have lasted 14 months and have ranged from value drops of -2.9 percent to -10.8 percent. While the new record is just -0.1 percent compared with previous figures, that fall came over 21 months between April 2010 and January 2012. The latest decline was a much swifter seven month drop.

CoreLogic head of research Eliza Owen said it is worth putting the Brisbane figures into context with the rest of Australia’s capital cities, as well as considering the significant rise in property values in the Queensland capital over the pandemic.

“Brisbane now stands out as one of two capital city markets with record declines, the other being Hobart,” Ms Owen said. “Sydney continues to have the largest peak-to-trough falls of the capital city markets (currently at -13.8 percent), while peak-to-tough falls remain mild in some cities (such as Perth, where values are down just -1.0 percent from a recent peak in August 2022).” 

“The record fall in Brisbane home values has not made much of a dent in the gains made during the upswing. The fall in the Brisbane daily HVI follows an upswing of 43.5 percent between August 2020 and 19 June 2022, which was the fastest trajectory of rising values on record. This leaves home values across Brisbane 27.9 percent higher than at the previous trough in August 2020.” 

The median dwelling value in Brisbane jumped from $506,553 at the start of the pandemic in March 2020 to $707,658 by the end of last year, Ms Owen said.

“Despite the large decline from peak, Brisbane maintains the third highest gain in value of the capital cities since the start of the pandemic,” she said. 

“Only Adelaide and Darwin, which are 42.8 percent and 29.6 percent higher respectively than at the onset of the pandemic, have performed stronger. 

“For this reason, there is marginal risk of negative equity for Brisbane homeowners, with the exception of very recent buyers, who purchased around the peak in June 2022 with less than a 20 percent deposit.” 

However, there are signs of resilience in the market. Brisbane remains a more affordable option compared with the other east coast capitals, Ms Owen said.

Although housing values remain higher than pre-COVID levels, Brisbane retains a lower price point than Sydney, with a $435,170 difference in median house values and $280,749 difference in median unit values,” she said. 

“The gap between Brisbane and Melbourne housing values is also significant, with a $119,697 gap between median house values and $97,692 difference in median unit values.

“This could encourage ongoing housing demand from those willing to migrate to the state, or own an interstate investment.” 

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