Home building costs surged at their fastest pace in more than two decades in the year to June and the industry faces little respite as rising energy prices add to the burden already posed by materials and labour shortages.
Residential construction costs nationally jumped 10 per cent, the highest annual rate of growth since the introduction of the goods and services tax at the turn of the century pushed costs up 10.2 per cent in the year to March 2001, new figures from data provider Cordell show.
Building material cost inflation may be past its worst but energy costs are now a growing threat to the industry. Scott McNaughton
The continued surge in inflation is already crimping activity in construction – the canary in the coalmine of the wider Australian economy – with builders last week reporting a fall in new orders for house and apartment work as a result of rising interest rates, higher costs and delays.
The latest figures, however, show that inflationary forces are spreading more widely across construction.
“Suppliers are frequently mentioning the impact of rising fuel, freight and electricity costs on their bottom line and these are significant additional challenges being faced by the industry,” said CoreLogic’s construction cost estimation manager, John Bennett.
“It is important to note these factors only add to other pressures that have impacted the residential construction industry for 18 months now, such as labour availability and overheads,” Mr Bennett said. “A shortage of labour and materials means a delay in completion times, which leaves builders vulnerable to market changes and holding costs.”
NXT Building Group, the largest residential builder in NSW, said that while prices of glass, steel, aluminium, timber and shipping had come off their peak globally, supply chains were yet to reflect any cost shifts.
“Think of it like bank interest rates – when rates go up the price is passed on straight away, but coming down is not as quick,” an NXT spokesman said.
“Just as the industry sees a downtown in costs of materials comes the energy crisis. The price of electricity and gas has increased dramatically for all manufacturing. This will also put a further strain on cashflow.”
The Cordell Construction Cost Index shows that over the three months to June, construction costs nationally rose 2.4 per cent, the same pace of growth they showed in the March quarter and more than double the 1.1 per cent rate of increase shown in the December quarter.
NSW and Victoria posted the biggest quarterly rate of inflation at 2.5 per cent, followed by Queensland and Western Australia at 2.3 per cent and South Australia at 2.2 per cent.
Price growth is running hot across the country.
Separate figures last week by consultancy Turner & Townsend showed Perth leapfrogged Sydney, Melbourne and Brisbane to become the most expensive city in Australia – and 36th globally – to undertake construction of any kind, with a 14 per cent annual rise in average construction costs.
The Cordell index, modelled around the construction of a three-bedroom, two-bathroom home, showed metal costs were higher, particularly with structural steel, reinforcing, fixings and fencing all up in the quarter.
It is difficult to play catch-up as the manufacturers, suppliers and available labour are already stretched beyond capacity.
— NXT Building Group spokesman
Prices for timber products were still rising faster than normal, price rises across the masonry industry, particularly in clay brick and paving product prices increasing, the index shows.
Prices for appliances and other fit-out items, particularly imported products were also posting higher-than-normal increases. Plasterboard, tiling and PVC products are also rising in cost, the index also shows.
There was little sign of relief in pricing to come and recent heavy rain in NSW had slowed projects further, CoreLogic research director Tim Lawless said.
“The pipeline of construction approved during COVID is still being worked through and there’s been a number of major weather events as recently as this month, which require significant rebuild and repair work. This all adds additional demand-side pressure for construction materials and trades,” Mr Lawless said.
“There’s also no reprieve on the supply side either with a lack of materials, elevated fuel costs and broader inflationary pressures. All of these factors have an impact and are likely to push building costs higher for some time yet.”
NXT Building Group agreed the heavy rainfall in NSW was making the situation worse.
“This year’s rainfall is now at 17 weeks for the year to date. This has severely affected on site productivity and slowed the cashflow for all sectors of the market. It is difficult to play catch-up as the manufacturers, suppliers and available labour are already stretched beyond capacity,” the spokesman said.
“Most would think that during the rain periods manufacturers and suppliers would be able to increase their stock holdings, but unfortunately, their storage facilities have limited capacity. So every sector of the building industry is affected.”
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