Cheaper materials take edge off home-building costs

Easing growth in home-building costs bodes well for builders, their customers and the inflation outlook.

Labour, materials and other construction costs have been rising strongly for a long period but CoreLogic's latest index suggests prices are coming off the boil.

The 0.5 per cent lift in construction costs in the June quarter was down from the 0.8 per cent increase in the three months before and compares to the one per cent pre-COVID-19 pandemic decade average.

Home construction
Despite the slower pace of cost growth, Australia remains an expensive place to build or renovate.

Costs lifted at their slowest pace annually in 22 years - up just 2.6 per cent.

Falling timber and metal product prices helped weigh on the construction cost index, but other major contributors to building costs such as labour remained elevated.

CoreLogic research director Tim Lawless said the slowdown in residential cost growth was a welcome development in the fight against inflation.

Residential building costs are a key input for the housing component of the consumer price index, which is the chief inflation gauge the Reserve Bank of Australia draws on to set interest rates.

However, Mr Lawless said the central bank would likely see less progress on rents - another component of the index. 

Despite the slower pace of growth, Australia remains an expensive place to build or renovate, with costs still about 30 per cent higher than before the pandemic.

“It’s likely the easing in the growth of construction costs over the past six months, alongside higher established housing prices, will gradually help to repair builder profit margins and flow through to providing more confidence around pricing for new builds and renovations,” Mr Lawless said.

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