Construction Crisis Just About Over

Construction costs peaked in July 2022, rising by 21% over the 12-month period. In Brisbane, the most impacted city, the increase exceeded 30%.

While there continues to be a lot of challenges in developing buildings where people want to live and work, construction costs have been a major restriction recently.  

It is therefore good news that construction costs are finally starting to ease. So much so that in Perth and Hobart, construction costs are actually declining. What has turned conditions around?

There were a number of factors that have driven construction costs and lowered the number of new developments built. Many of these are now being resolved, or will be over the next six months.

Problems started with supply chain blockages. Shipping costs skyrocketed post-pandemic and the cost of building materials increased as a result. However, cost increases weren’t the only challenge. It also became slower to get building materials and this impacted productivity as projects were delayed. Supply chains are now moving smoothly again.

The cost of materials also increased because we weren’t the only ones starting to build again post-pandemic. The cost of many raw materials skyrocketed as a result of increasing demand.

Labour shortages have also been problematic and this is taking longer to fix. Higher migration is helping but that is also putting more pressure on housing demand. Competition from other building projects has also meant that demand for trades is coming from a wide range of sources.

Brisbane, where costs have skyrocketed the most, has felt this most significantly. Not only did Brisbane see high interstate migration through the pandemic requiring more homes, it has also been in the midst of a building boom – a new casino, new office buildings, infrastructure construction and rebuilding post floods. Labour costs are the reason why Brisbane saw the biggest jump in construction costs.

Fewer building companies has also been a problem. As building costs skyrocketed, a large number of building companies became insolvent. Projects were again put on hold, or stopped mid construction. Like labour, it will take some time for this to improve again with less competition for building expected to keep prices more elevated.

Moderating construction costs are already leading to an increase in the number of building approvals. Although new dwelling approvals are still very low, they increased by 7% in August. We expect to see increasing construction activity as prices continue to moderate.%