Construction costs ease but labour supply problems persist

Last week’s data from the Cordell Construction Cost Index (CCCI) revealed the cost of building materials is finally beginning to slow, but construction woes are not over yet.

Ray White chief economist Nerida Conisbee said while the cost of key materials such as timber and steel had eased over the past quarter, other factors meant that delays in the building industry are set to continue.

“While cheaper materials are helping things, labour supply remains a problem with too few workers,” Ms Conisbee said. “Over the past quarter there were 33,100 job vacancies in the construction industry. This however is a reduction from the 40,000 vacancies 12 months ago.”

Those hoping that more favourable conditions means that more new housing stock would come onto the market would also be disappointed, she said.

“While it’s great news that construction costs are slowing, there will continue to be challenges in getting enough homes built over the next two years,” she said. “Building approvals are currently at a decade low and it will take some time for the pipeline to build.”

Population growth that has seen numbers increase by 500,000 in the past year was likely to put further pressure on demand for more homes.

“That means that in just one year, we need roughly an additional 200,000 homes,” she said. “With 173,000 homes built last year, we are falling short in just one year by 27,000 homes.

“Reaching greater affordability for buyers and renters is unlikely to happen anytime soon with such a shortfall.”

Australia’s Treasury Wine Estates admitted defeat in its effort to divest brands including Wolf Blass and Blossom Hill, moderating its annual earnings guidance amid weaker sales of its cheaper products.

Last year, Treasury outlined plans to offload its so-called commercial portfolio in a pivot toward costlier, higher-margin brands. As part of the move, it bought California’s Frank Family Vineyards in 2021 and Daou Vineyards in 2023 in deals worth US$1.31 billion combined.

On Thursday, Treasury told investors that it had failed to find a buyer for its budget brands.

“TWE has concluded that the offers received for these brands did not represent compelling value and therefore their retention is the best course of action,” Treasury said.

The company, which is best known for its prestigious Penfolds brand, said that demand for brands typically retailing for less than US$19 a bottle had fallen by 4.9% in the December-half. That includes the commercial portfolio, which comprises the company’s cheapest offerings.

As a result, Treasury expects so-called Ebits—earnings before interest, tax and other impacts including one-off items—for the full fiscal year of 780 million Australian dollars, or about US$489.8 million. That’s at the bottom end of its previously issued A$780 million-A$810 million guidance range.

Even so, Treasury on Thursday reported a A$220.9 million net profit for its fiscal first half, up 33% on year as the company continued to re-establish its Penfolds brand in China following that country’s removal of tariffs on Australian wine.

Revenue rose by 20% to A$1.57 billion, while profit increased 33% to A$239.6 million once material items and currency moves were stripped out.

The average analyst forecast had been for a net profit of A$242.1 million from revenue of A$1.57 billion, according to data compiled by Visible Alpha. Treasury reported first-half Ebits of A$391.4 million.

The board declared a dividend of 20 Australian cents a share, up from 17 cents a year earlier.

Construction costs ease but labour supply problems persist

The handbrake is still on the Australian residential building market as industry remains at a crossroads

The company is best known for its prestigious Penfolds brand