The costs of residential construction

As a collective, construction costs in Australia grew by 1.1 per cent over the three months to September 2019, up by 3.7 per cent year-on-year.

The growth in costs can be attributed to a number of factors, including an increase in employment in the construction industry, which has risen by 14.1 per cent over the past five years.

In NSW, residential construction costs were up by 1.2 per cent over the September quarter.

“The CoreLogic hedonic indices released in October suggests that Sydney dwelling values are beginning to bounce back,” the report noted.

“The value of dwellings across Sydney was up by 3.5 per cent over the three months to September. House values across regional New South Wales were down by 0.2 [of a percentage point] over the quarter, although saw a slight improvement month-on-month (0.1 [of a percentage point]).”

Victoria saw quarterly growth of 1.2 per cent and annual growth of 3.9 per cent.

“Although the Vic CHIP index is lower than the national figure (287.5), the quarterly increase in Victoria’s residential building price index (1.2 per cent) is currently higher than the increase in building costs across Australia (1.1 per cent),” CoreLogic said.

“CoreLogic’s home value index released in October saw the national index post the largest monthly gain since March 2017, largely driven by a strong rebound in Sydney and Melbourne where values were up by 1.7 per cent over the month.

“The strong rebound in Sydney and Melbourne housing markets relative to other regions can be attributed to a variety of factors. While all regions are benefiting from low mortgage rates and improved access to credit, economic and demographic conditions in New South Wales and Victoria continue to outperform most areas of the country.

“Population growth is higher, unemployment is lower and jobs growth is stronger, providing a solid platform for housing demand. A rebound in dwelling prices across the state may see the cost of construction continue to rise.”

In Queensland, construction costs grew by 1.0 per cent over the quarter and 3.4 per cent annually.

“The highest growth rate in Queensland’s CHIP index over the past 10 years was in the September 2012 quarter, when the index rose by 2.1 per cent. Quarterly CPI growth was also at a high, increasing by 1.7 per cent over the same period,” CoreLogic said.

In WA, construction costs grew by 0.8 of a percentage point over the quarter and 2.7 per cent annually.

“CoreLogic’s hedonic indices released in October reported Perth as being the weakest-performing capital city over the three months to September 2019, with dwelling values falling by 1.9 per cent and down by 9.0 per cent annually,” CoreLogic said.

“Regional WA was also weak, with dwelling values falling by 11.4 per cent over the 12 months to September.”

Meanwhile, SA saw construction costs increase by 0.5 of a percentage point over the quarter and by 2.6 per cent year-on-year.

“South Australia continues to report the lowest CHIP index at 267.1. Quarterly growth in the SA CHIP index was the lowest of all states and territories… The CoreLogic home value index saw Adelaide house values fall 0.7 [of a percentage point] over the three months to September, similar to regional SA where house values were down by 0.6 [of a percentage point] over the same period,” CoreLogic noted.