Construction Costs Hit New Heights in 2024

Construction costs rose by 3.4 per cent in the year to December 2024, marking the largest annual increase since September 2023, according to CoreLogic’s Cordell Construction Cost Index (CCCI). While quarterly cost changes initially eased to below 1 per cent in early 2023, they climbed back to 1 per cent during the second half of the year, aligning with pre-COVID averages.

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Queensland led the country with a 1.2 per cent increase in construction costs over the December quarter, followed by New South Wales, Western Australia, and Victoria at 1 per cent. South Australia recorded the smallest quarterly increase at 0.9 per cent. Although these quarterly shifts match the pre-pandemic average, the annual rise remains significant, as residential construction costs have surged by 30.8 per cent since the onset of COVID.

CoreLogic economist Kaytlin Ezzy highlighted that the industry’s challenges extend beyond rising costs. “Residential construction companies continue to face profitability challenges,” Ezzy said, citing compressed margins, ongoing labour shortages, and a shrinking construction pipeline. The Australian Bureau of Statistics recently reported that new housing commencements have plummeted to a 10-year low, contributing to the insolvency of 2832 construction companies during the 2023-2024 financial year.

Approvals have shown a slight improvement but remain 7.1 per cent below the decade average. Meanwhile, November 2024 saw a 0.6 per cent drop in new housing purchases, a decline attributed to builders offering discounts and promotions to attract clients. “While deflation in new dwelling purchases seems contrary to increasing construction costs, these discounts are putting further pressure on already tight margins,” Ezzy explained.

Labour costs remain a key driver of rising expenses, according to CoreLogic’s construction cost estimation manager John Bennett. “It was a mixed bag this quarter, with increases and decreases across categories,” Bennett said. For instance, concrete block prices fell by 15 per cent, while plumbing PEX fittings and pipework rose by 5 per cent.

Despite these challenges, inflationary pressures appear to be moderating, with new housing prices rising by 2.8 per cent over the year to November, compared to overall inflation of 2.3 per cent. The CCCI continues to track changes across the most common residential builds, highlighting the complex dynamics shaping the Australian construction landscape.

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