Housing construction costs surged 1.3% over Q1 2021, according to CoreLogic’s Cordell Housing Index Price (CHIP). The CHIP report measures the rate of change of construction costs within the residential market and covers freestanding and semi-detached single and two storey homes.
The March quarterly growth is the highest rate of construction cost inflation since Q1 2019, and far above the 0.6% and 0.4% increases throughout Q3 and Q4 2020 respectively.
CoreLogic’s Chief Property Economist, Kelvin Davidson, says “We may now be seeing the clear impact of a busy construction sector flowing through to faster cost rises. Q1 bounced up to 1.3% growth and early indicators are that we will see a continuation of this growth in our Q2 report. Annual residential construction cost inflation is also back on the rise, up to around 3.3% in the March quarter after falling to under 3% in Q4 2020 from a peak of 6.9% in Q4 2017.
“The construction sector is proving to be a real bright spot in the economy; especially the residential segment. New dwelling consents annually are tracking at their highest levels on record. Our teams are also hearing through their research and conversations about increasing material and labour costs coming down the pipe as there are shortages and substitutions, and the expectation is for this to have a continuing impact on the cost of building in the near future,” says Mr Davidson.
When combined with potential COVID-related shipping problems, and also the recent publicity about shortages of structural timber domestically, the potential for faster and greater cost rises is accentuated.
“The Government’s recent tax policy changes which incentivise investors to target new-build properties could well add further demand to the sector and place more pressure on capacity and costs. Time will also tell if the Government’s budget reveal next week includes other enticements or measures aimed to lift housing supply. After all, any Government-boosted work is in competition with the private sector for scarce resources,” says Mr Davidson.
CoreLogic researches, tracks and reports on construction price data which flows through its Cordell product solutions to help businesses make better decisions, estimate rebuild and insurance quotes easily and, ultimately, appropriate risk effectively.