Construction costs are continuing to rise, suggesting the period of unusually subdued building cost growth may be coming to an end.
According to Cotality’s Cordell Construction Cost Index, residential construction costs increased 1.1% in the three months to June, up slightly from 1.0% in the March quarter. Annual cost growth also accelerated from 3.0% to 3.5% – the strongest annual increase since mid-2023.
Why costs are increasing
Cotality Chief Property Economist Kelvin Davidson said construction costs were no longer rising at the rapid pace seen during the pandemic, but the market was becoming less favourable for households hoping building costs would continue to soften.
“Construction costs aren’t surging again, but conditions are becoming less favourable for builders and households,” he said.
Mr Davidson said the construction sector was emerging from a prolonged downturn, with more approved building projects starting to move ahead. At the same time, global factors have added to cost pressures.
Higher oil prices triggered by the conflict in the Middle East have increased transport costs, while suppliers have raised prices for several building materials, including structural steel, plumbing components, insulation and aluminium roofing accessories. Some suppliers have also indicated further increases may be on the way if global uncertainty continues.
What it means for homeowners
The good news is that today’s cost increases remain much more modest than those experienced in 2021 and 2022. Builders are also operating in a competitive market, which means many are absorbing part of the additional cost rather than passing the full increase on to customers through higher contract prices.
However, anyone planning to build a new home or undertake a major renovation may benefit from budgeting carefully and allowing some contingency for future price rises, particularly if their project is still several months away.
With more approved projects expected to move into construction, Cotality believes cost pressures are likely to continue building over time. That makes early planning more important than ever.
Whether you’re building a new home or renovating an existing one, getting your finance right from the outset can make the process much smoother. Contact us to discuss your lending options and prepare for the costs ahead.
