The most recent Cordell Construction Cost Index (CCCI) revealed the largest annual increase in housing construction costs on record excluding the period impacted by the introduction of GST.
Nationally, construction costs increased by 1.9% over the December quarter to be 11.9% higher over the 2022 calendar year.
The increase in housing construction costs was significantly higher than the 7.3% figure recorded over the 12 months to December 2021.
According to CoreLogic Construction Cost Estimation Manager, John Bennett, the biggest contributors to the cost inflation were timber prices, alongside metal products such as gutters, lintels and fixings used for roofing and structural purposes.
Higher petrol rises are also negatively impacted cartage and delivery costs, most notably in concrete.
The cost escalation has already sent scores of Australian home builders to the wall, with experts tipping the collapses to continue as higher interest rates bite.
Master Builders Gold Coast regional manager Adam Profke said it was a nasty situation for everyone involved and the industry’s crisis would continue for months.
“It’s an exceptionally tough time, it’s unprecedented”, Profke said.
“Those guys that are still around today say it’s tougher than back in the [global financial crisis]”.
Rising construction costs and interest rate increases had led to cost blowouts, according to Profke, which has meant builders on fixed-price contracts are finding themselves with negative margins and unable to sustain the financial losses.
“A lot of our builders are locked into fixed-price contracts for the work and just to get through those projects builders are sustaining losses, because they’re not able to pass those on to their clients”, Profke said.
He expects more builders to go bust over coming months as they began to report to the Australian Taxation Office.
“That’s when people’s tax debts are realised and they have to pay those bills back”, Profke warned.
“We are expecting to see some more insolvencies”.
While cost inflation is beginning to ease, home builders are now facing a collapse in demand, which should impact the sector badly in 2024.
The Housing Industry Association’s latest new home sales figures have halved since the RBA commenced its rate tightening cycle:
New construction home loans have likewise tanked to Global Financial Crisis lows in response to the RBA’s aggressive rate hikes:
Dwelling approvals have also collapsed:
This means that work for home builders will dry up next year after the current pipeline of homes under construction are finished.
The outlook is also bad for Australian tenants who are currently facing the tightest rental market on record amid unprecedented immigration inflows.
Housing supply is set to dry up just as demand via immigration is soaring, meaning further rental cost escalation and more Aussies being pushed into homelessness.
