After the quarterly change in construction costs eased to below 1.0% in 2023 and the first half of 2024, the quarterly pace of growth rose to be in line with the pre-COVID decade average of 1.0% through the second half of 2024, shifting the annual trend higher.

CoreLogic Economist Kaytlin Ezzy said the latest data represents another challenge for an industry that is already struggling.

While still around 40 basis points below the pre-COVID decade average of 4.0%, the recent uptick in the annual pace of construction cost increases will be unwelcome news for builders already contending with tight profit margins.

“Residential construction companies continue to face profitability challenges with the CCCI up 30.8% since the onset of COVID
“Outside of compressed margins and continued labour challenges, the construction industry is also facing a looming shrinkage in the construction pipeline.”

She said building commencements have trended lower, with ABS data for new dwelling commencements over the year to June 2024 at 10-year lows.

“These factors combined have contributed to an increasing number of liquidations, with 2,832 construction companies becoming insolvent in the 2023-2024 Financial Year, representing the greatest proportion of company collapses.”

“Although up over the year, dwelling approvals over the 12 months to November also remained -7.1% below the decade average, suggesting this shortfall of new projects entering the construction pipeline may continue for some time.”

This was supported by the latest monthly CPI results, with new dwelling purchases sub-categories recording a -0.6% decline in November.

“While deflation in new dwelling purchases seems contrary to increasing construction costs, the ABS noted this decline was primarily driven by builders offering discounts and promotional offers to entice business, putting further pressure on margins.”
Over the year to November, new dwelling prices increased 2.8%, compared to a 2.3% increase in headline inflation.