House construction costs held steady in the September quarter after 16 consecutive quarterly increases.
The latest Producer Price Index from the Australian Bureau of Statistics (ABS), which measures changes in the prices of goods and services, reported that input prices for house construction remained unchanged at 0 per cent in the September quarter of 2023.
This marks a notable shift from the previous 16 quarters, which saw consistent price increases since the December quarter of 2019, lifting to an annual peak of 17.3 per cent in June 2022.
It comes as September’s quarterly inflation reached 5.4 per cent, leading economists to review their cash rate predictions for next Tuesday, 7 November, when the Reserve Bank of Australia (RBA) will meet.
Over the past 12 months, input prices for house construction have increased by 4.4 per cent.
Several factors have contributed to the increase in housing costs, including supply chain challenges, lockdowns, increased regulations and labor delays, which have collectively burdened the construction industry over the past two years. These challenges have also led to a surge in insolvencies across the sector.
Finance broker at Perry Finance, Cameron Perry, said these factors have made it difficult for property developers to deliver projects on time and within budget, especially in Victoria.
Mr Perry said many builders that entered fixed-price contracts, when costs were stable over a number of years, have been hit with costs that have risen by 40–50 per cent, which they have been unable to recover.
As a result there hadn’t been as much, private sector construction in the past couple of years.
The ABS data coincided with the Cordell Construction Cost Index (CCCI) by CoreLogic, which showed the quarterly growth rate for September was 0.5 per cent, marking the smallest increase since the three months leading to June 2019.
HIA senior economist Tom Devitt noted: “The slowing in cost of house building inputs reflects a significant easing in the materials constraints that plagued the industry during the pandemic.
“Most of Australia’s pandemic inflationary pressures came from building materials and fuel.
“Last year, structural timber and reinforcing steel prices were both up by more than 60 per cent on pre-pandemic levels. In the last year, they have declined by 8.8 per cent and 5.3 per cent respectively.”
Referring to the ABS data, Mr Devitt said: “Steel beams and sections, which were up by more than 50 per cent a year ago, subsequently declined by 17.2 per cent.
“As these pressures ease, it will provide more certainty of future house building costs, as well as hasten the need for a cut to interest rates.”
Prices increased in other materials by 1.2 per cent, driven by paints and other coatings, which rose by 5.4 per cent due to increased demand for later-stage materials and the escalating costs of raw materials related to crude oil prices.
Ceramic products also saw a 1.9 per cent increase, with clay bricks leading the way with a 4.9 per cent rise. This was attributed to increased manufacturing costs for electricity and gas as suppliers transition to new energy contracts.
Concrete, cement and sand saw a 1.4 per cent increase, primarily due to a 1.3 per cent rise in ready-mixed concrete.
This increase can be attributed to higher manufacturing costs from electricity and strong demand from various sectors of the construction industry.
However, timber, board and joinery experienced a decrease of 0.8 per cent, driven by structural timber, which declined by 2.8 per cent.
This can be attributed to improved supply conditions, reduced demand for new house construction and more competitive costs for steel products and electrical equipment.
The continued decline in new housing construction resulted in suppliers offering discounts on products used in earlier construction phases to remain competitive in a tight market.
In contrast, building construction prices rose by 1.3 per cent in the current quarter and 5.1 per cent over the past 12 months.
This increase is attributed to rising labor costs due to the ongoing shortage of skilled tradespeople, coupled with strong demand within the industry.
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https://www.mortgagebusiness.com.au/ “Housing costs stabilise after more than 3 years: ABS” / Kate Aubrey