Construction Costs Ease, But Builder Confidence Still Fragile

The nations construction sector continues its slow recalibration, with the latest ABS data showing a modest 0.7% rise in construction costs for the June quarter, down from 0.9% in March. The annual increase now sits at 3.4%, marking the lowest year-on-year growth since late 2021. While this signals a welcome easing in inflationary pressure, the industry stays cautious, with builder sentiment still subdued.

Final demand, quarterly and annual percentage change and index

A Variance of State-Level Trends

Construction cost growth is still uneven across the country. Brisbane leads with a 6.5% annual increase, fuelled by strong infrastructure demand and ongoing labour shortages. Sydney and Melbourne aren't far behind at 5-6% growth, while Canberra saw the smallest rise at just 3%, reflecting more balanced supply-demand dynamics.

Material costs, particularly for concrete, plasterboard, and steel continue to fluctuate, with regional supply challenges adding extra pressure. Labour is proving the bigger hurdle though, with wage growth and a shortage of trades pushing out build times and squeezing margins.

Builders Still Holding Back

Even with cost pressures easing slightly, many builders remain hesitant to commit to new projects The reasons are complex:

• Financial strain: Insolvency rates remain high heading into FY25/26.
• Tight margins: Developers are juggling tough lending conditions and unpredictable input costs, making project feasibility increasingly difficult, particularly with build times extending out.
• Workforce shortages: The sector is still short around 90,000 workers, and training and migration programs haven't yet closed the gap.
• Two-speed market: Government-backed infrastructure projects are powering ahead, but private residential developments continue to stall or be deferred.

This caution is most visible in the residential space, where buyer demand is still patchy and developers are wary of locking in contracts amid lingering volatility.

Looking Ahead

The June quarter numbers suggest the worst of the cost escalation may be behind us, but confidence is still fragile. The big question now is whether the industry can move from simply weathering the storm to building with a longer-term outlook.

For developers, investors, and policymakers, the challenge is managing a market where costs have steadied but risks haven't gone away. One area that often slips under the radar is insurance. With construction costs and asset values still creeping up year on year, relying on outdated valuations can leave property owners dangerously underinsured-and facing major losses if something goes wrong.

Regular reviews of insurance coverage help ensure that protection keeps pace with current replacement costs, providing an essential buffer against ongoing volatility.

Previous Related Articles

• Construction Costs Stabilize, Pressures Remain
• Construction Costs & Housing Shortage Update 2024
• Spiraling Construction Costs - no end in sight
• Construction Costs & Housing Shortage Issues
• Outlook to 2023 for Construction Costs