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Construction cost escalation in Australia continues trending back to normal rates
But declines in costs are not expected, rather, we expect positive escalation at more normal rates from the new, higher base
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The period of elevated construction cost growth across Australia appears to be coming to an end. Average cost inflation across the construction sector slowed to 7.4% over the year to June 2023, and then eased even further to 4.2% in the year ending December 2023. This is a reprieve from the peak inflation rate of 11.2% a year prior.
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Costs have been stabilising within the residential sector. The most recent data, up to December 2023, marks the fifth consecutive slowdown in the quarterly pace of growth for detached dwellings. This took the annual growth in the index to 4.1%, a sharp decline from close to 20% in the same period last year. Similarly, cost inflation for the other sectors in construction have dropped back down to single digit rates.
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Some of the factors which initially drove the surge in cost inflation have now dissipated, such as the sharp rise in commodities prices, which has now largely reversed. But other factors persist, with the key drivers of the current rate of cost inflation being:
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- Strong levels of non-residential building, transport infrastructure, and house building across Australia, which is pushing up demand for all inputs to construction,
- Capacity constraints in the building, construction and materials sectors, supply shortages and delays in various areas,
- Higher inflation expectations and very low unemployment, pushing up wages growth, and,
- The lagging impact of higher commodity prices on the cost of some products.
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A number of input items that have recently spiked are now seeing slower price growth, with significant declines in prices expected to follow. This is most notably the case with steel, other metals, piping costs and fuel prices. We expect the prices of these products to decline over the next two years.
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Construction cost inflation should ease back to around 1.9% in the year to June 2024 and continue to follow a more normal rate thereafter.
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The key point to note, however, is that we do not expect costs to drop back again following the previous surge – rather we expect costs to continue rising from the new, higher base, albeit at more normal rates of increase.
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New Dashboards Available for Subscribers
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The new Dashboards page on our website allows subscribers to create and download custom charts.
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If you would like access these dashboards or if your organisation requires help with construction sector forecasts or project cost escalation forecasts, please get in touch with us, at info@macromonitor.com.au.
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Our most recent reports:
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Australian Construction Cost Trends
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This report examines the outlook for construction costs, in detail be sector and type of input.
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Australian Construction Projects Database
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This latest list of projects corresponds with our fully revised set of forecasts published in November 2023.
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Australian Regional Construction Outlook
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Our latest regional forecasts for residential building and construction have just been released.
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Australian Road and Bridge Works
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This report examines the strength and composition of the current upturn, and determines the likely timing of the peak, and subsequent decline.
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Australian Construction Outlook - Transport Infrastructure
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This report provides a detailed picture of the current upturn in infrastructure construction, including the timing of major projects, key drivers, and the expected timing of the peak and next downturn.
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