The cost of building homes in Australia shot up by 3.4 per cent in 2024, making it the biggest jump since September 2023.
If you’re in the building game or thinking about building your dream home, this isn’t exactly the news you were hoping for.
New data from CoreLogic’s Cordell Construction Cost Index (CCCI) shows a steady climb in residential construction costs, with quarterly growth hitting 1 per cent in both September and December of 2024.
While this sounds like a return to normal pre-COVID trends, it’s adding a lot more pressure on builders already operating on razor-thin margins.
“Construction companies are really feeling the heat,” said CoreLogic economist Kaytlin Ezzy.
“Since COVID, costs have skyrocketed by 30.8 per cent, and that’s making it tough for builders to stay profitable.”
If you’re in Queensland, you’ve likely noticed that construction costs are climbing faster there than anywhere else.
Costs in the Sunshine State jumped 1.2 per cent in the December quarter alone, pushing annual growth to 3.3 per cent.
New South Wales, Victoria, and Western Australia all kept pace with the national growth rate of 1 per cent, while South Australia saw a smaller rise of 0.9 per cent.
Even so, South Australia’s annual cost growth hit 2.9 per cent, showing there’s no escaping the pressure.
Tradie troubles are driving prices up
One big reason for rising costs? Labour shortages. The construction sector is facing a major talent crunch, with job vacancies up 33.5 per cent compared to pre-COVID levels, according to recent stats from the Australian Bureau of Statistics (ABS).
“It’s a mixed bag when it comes to cost increases, but one thing that doesn’t change is the impact of labour shortages,” said John Bennett, CoreLogic’s construction cost expert.
And it’s not just a small gap to fill. the Housing Industry Association estimates the country will need another 83,000 skilled workers to hit the government’s target of 1.2 million new homes over the next five years.
Fewer projects, mo’ problems
Adding to the headaches, the number of new construction projects is shrinking. ABS data shows new dwelling commencements hit a 10-year low by mid-2024.
In November alone, approvals for new dwellings dropped by 3.6 per cent to just under 15,000.
This slowdown is hitting builders hard. Over 2,800 construction companies went under during the 2023–24 financial year—the highest number of collapses across any industry.
“Even though some dwelling approvals are up slightly, they’re still 7.1 per cent below the decade average,” Ezzy said. “That means fewer projects are coming down the pipeline, and the industry could stay in this rut for a while.”
Interestingly, while construction costs are rising, new dwelling prices have been dropping slightly.
Why? Builders are throwing in discounts and promotions to attract customers. This strategy might help bring in business, but it’s adding even more strain to already stretched budgets.
What’s next for the industry?
With climbing costs, worker shortages, and fewer projects, the construction industry is walking a tightrope right now. If you’re a builder, expect more challenges ahead that might see you forced to tighten your work belt.
If you’re a homebuyer, it’s worth keeping an eye on how these factors might impact housing affordability in 2025.
One thing’s for sure—there’s no quick fix for these issues, and the industry is in for a bumpy ride.