Cotality, previously Corelogic, has issued its updated Cordell Construction Cost Index, revealing a 0.9% rise in residential building costs over the three months ending in December.
The index comprises 50% materials, 40% wage costs, and 10% other expenses like professional fees and consenting.
The annual increase accelerated to 2.3%, yet it remains below the long-term average of 4.1% recorded since 2012.
Cotality chief property economist Kelvin Davidson noted that the growth pace remained constrained.
“We are certainly not seeing the extreme inflation experienced in the post-Covid phase, when the [index] annual growth rate peaked at more than 10% in late 2022,” he said.
“During that period, there were supply chain issues for key materials such as plasterboard, and rising wages also drove up costs significantly.
“However, although they’re not rising to any huge degree at present, costs haven’t seen significant falls either.”
“Following the previous growth phase, the overall level of cost to build a new dwelling remains elevated even though the growth rate has cooled.”
He said confidence is rebounding in the construction sector, with dwelling consents rising again, reaching 35,500 on a rolling 12-month basis in October.
“After peaking at more than 51,000 in the 12 months to May 2022, the number of new dwellings consented dropped to a low point between 33,500 and 34,000. We are now seeing a recovery that aligns with anecdotal evidence that builders are becoming busier again.”
Activity is likely to accelerate as interest rates fall, alongside rules like loan-to-value ratios and debt-to-income restrictions that make new builds more attractive.
Prospects are brightening for construction firms, Davidson said.
“What I hear on the ground and from people I talk to in the construction industry, there is a bit more confidence coming through.”
“It takes a while, and it’s been a pretty big downturn for sure, and some developers have done it pretty tough, maybe buying land at the absolute peak value and then seeing interest rates go up and demand for that product come down, prices they could eventually sell it for come down… a big squeeze on margins when you’ve paid top dollar for land, the cost to build has gone up, and the eventual selling price has come down. It’s been pretty tricky.”
“Some people have obviously done it pretty tough, but I guess the other thing I think you also have to acknowledge is that, yes, it’s been a big downturn, but it was coming off an incredibly high base. So, actually, in the long-run context, we’re still building a decent number of properties compared to what we’ve done at the previous troughs.”
“So, you know, it’s not all doom and gloom, but at the same time, acknowledging that it has been tricky for a lot of builders.”
A phase of subdued construction cost growth benefits homeowners eyeing a new build, he said.
“If you sign up for something off the plans and it’s not going to be ready for 12 or 18 months, at least you can kind of have a bit more confidence that it’s not going to run away in the meantime. I think that a bit more stability is probably what people have been hoping for.”
“I think a lot of people would probably say it’s still expensive to build a house. But the growth rate hasn’t been as fast. So, you know, things have stabilised, have plateaued. And I guess, you know, with interest rates coming down, it just does get a bit more affordable.”