11 Oct 2023

Construction cost growth edges down in September quarter

10:19 am on 11 October 2023
No caption

(file image) Photo: 123RF

Construction costs are expected to continue to moderate in line with weaker demand for new residential developments.

The latest Cordell Construction Cost Index (CCCI) shows construction costs rose by 0.5 percent in the September quarter, which was down slightly from 0.6 percent in the first six months of the year, and the lowest figure reported since the fourth quarter of 2020.

The CCCI report measures the rate of change of construction costs within the residential market for a typical three-bedroom, two-bathroom, brick and tile, single-storey dwelling.

Annual cost growth dropped to 3.4 percent from a peak of 10.4 percent in late 2022 and was less than its 10-year average of 4.5 percent.

"We've now entered a more subdued phase for construction cost inflation, reflecting the marked easing in materials supply chains, compared to the Covid-affected period over 2021 and 2022," Corelogic chief property economist Kelvin Davidson said.

He said new dwelling consents remained elevated with more than 40,000 on a 12-month rolling basis, though volumes were expected to fall.

"While new builds probably won't get cheaper, a controlled annual growth rate of 2-to-3 percent gives confidence for buyers to invest and for developers to keep bringing projects forward," Davidson said.

"It wouldn't be a surprise to see the quarterly rate of change in the CCCI continue in the vicinity of 0.5 percent for the next few quarters."