Building Industry Set to Bounce Back?

Recent data from the Cordell Construction Cost Index reveals a notable slowdown in the rapid growth of home-building expenses, reaching the lowest point in two years. This deceleration can be attributed in part to diminished demand resulting from project cancellations or delays, which has in turn reduced inflation in an industry marked by swiftly rising prices.

In the March quarter, the cost of constructing a new home increased by a mere 0.9%, a smaller increase compared to the previous quarter. This indicates that the pace of price growth is slowing. Nevertheless, the instability of building material costs implies that prices could potentially surge again in the future.

John Bennett, CoreLogic's construction cost estimation manager, reported that although timber prices have experienced a slight decline, the market remains volatile, particularly with regard to structural timbers. Furthermore, the pricing of metal products is becoming increasingly unpredictable across various categories. The cost of bulk materials has also risen in the past quarter, possibly due to climbing fuel prices. Overall, the market remains uncertain, posing significant challenges for the building industry.

This instability has left some construction companies struggling. For example, Plumbfirst Group, a plumbing and electrical contracting business, recently declared bankruptcy as they could no longer afford the costly materials required for their projects.

Ultimately, the expense of constructing a new home remains significantly higher than pre-pandemic levels. Building industry insolvencies in the first quarter increased from 271 to 461 compared to the same timeframe last year, as reported by ASIC. The Cordell Construction Cost Index indicated that Queensland experienced the steepest rise in costs during the quarter, followed by South Australia and Western Australia. This demonstrates that the dream of building a new home remains out of reach for many individuals.

Source: https://www.afr.com/property/commercial/home-building-cost-growth-slows-to-two-year-low-20230417-p5d13a