The CHIP index rose by 1.0% over the December quarter of 2020 to be 3.6% higher annually. This was well above the official rate of inflation, as measured by the Consumer Price Index (CPI):
According to Tim Lawless at CoreLogic, construction cost pressures are likely to grow on the back of the HomeBuilder-driven residential building boom:
“With dwelling approvals for houses at record highs, it’s likely we will see additional pressure growing on constructions costs as demand continues to build for residential construction materials and resources…
“Although HomeBuilder is phasing out after March, it’s highly likely we will see a continuation in this trend towards higher residential construction costs. It will take some time for builders to work through the pipeline of house approvals that have surged through the second half of last year”.
The data speaks for itself. Detached house approvals are running at record highs:
The same goes for construction finance commitments:
Based on the above, I am surprised that the CHIP index hasn’t already surged amid the feverish demand for builders, tradies and materials, alongside the usual mark-ups that occur when governments provide heavy industry subsidies.
As Tim Lawless says, the building cost inflation will likely hit later this year as the industry works through the massive construction pipeline.
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
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