CoreLogic has released Cordell Housing Index Price (CHIP) data, which measures housing construction costs across Australia.
The CHIP index is measured daily via detailed cost surveys and are reported on a quarterly basis.
The index is based on a combination of labour, material, plant hire and subcontract services required to construct buildings. In particular:
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- Roofing Insulation and Roof Plumbing
- Doors and Hardware
- Painting and Tiling
- Electrical Services
- Excavation and Concrete Work
- Carpentry and Joinery
- Windows and Glazing
- Plumbing and Drainage
- Sundry Appliances
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.