Over the past few years, the construction industry has faced a major challenge with the increase in building costs attributed to disruptions across global supply chains, material scarcities, and soaring prices. With profit margins typically projected between 5% and 10%, the industry witnessed an unprecedented 20% surge in building expenses, resulting in several enterprises facing receivership. However, the horizon holds a potential silver lining. By delving into recent insights, we aim to ascertain the plausibility of this stabilisation within the construction industry. Furthermore, we examine the implications for key construction materials, shedding light on the prospective implications for the industry’s trajectory.
Are Building Prices Stabilizing?
Since the COVID pandemic first emerged in 2021, the construction industry has faced a considerable surge in building costs due to disruptions in the global supply chain, material shortages and inflated prices. The result of this has seen several building companies enter receivership due to a significant impact on their profit margins that were generally calculated between 5% and 10% but the increase in building costs was at an all-time high of 20%.
New research is now showing that there are signs construction costs have peaked at the end of 2022 and are beginning to stabilize. According to CoreLogic’s Cordell Construction Cost Index (CCCI) a growth rate of 0.9% was returned for the first 3 months of 2023 which is level that has not been witnessed since March 2021. This figure is less than half of the Q4 2022 data which came in at 1.9% and is a significant slowdown in comparison to the Q3 2022 rate of 4.7%.
Industry growth Stats
What is the Cordell Construction Cost Index (CCCI)?
The Cordell Construction Cost Index (CCCI) is an industry standard which is released each quarter that tracks and monitors the fluctuation of construction costs for stand-alone houses in Australia.
It indicates the rate of change in prices with sections of the construction industry and includes expert comments on key market factors such as cost of supplies and labor. Both State and National price changes are included, providing an overall understanding of how building costs are trending on a quarterly basis.
Two of the major construction costs associated with building apartments and medium density dwellings have stabilized after demand skyrocketed for new homes and pushed the price of materials to their historical highs in 2022. Steel Rebar peaked in May 2022 at $1106 per metric ton and has now stabilized to $644 pmt in June 2023 which is roughly the same as pre covid levels. It could be some time further before we see these prices passed on to consumers as suppliers will still be factoring in the cost they have paid for materials previously.
Likewise concrete, one of the main components used in construction for everything from single dwelling resi right up to high density high rise has also stabilized. Currently it is still 20% higher than pre covid levels and is likely to stay that way for the foreseeable future. Given the amount of concrete used across the construction industry it will remain a pain point for construction companies to navigate although the stabilization of this price should start to give construction companies higher levels of confidence in pricing contracts for buildings and starting new projects.
“After two years of unabated increases in the price to build a new home or renovation, there are signs pressures on construction costs are easing despite lingering labour shortages and volatility among timber, metal and petrol prices.”
CCCI, 2023
Moving forward to a stable market
The disruptions and surges in building expenses that defined the post-COVID era are now showing signs of abatement, offering a glimmer of hope for construction companies and home owners. The stabilization of construction costs not only signifies a potential resurgence of financial stability but also paves the way for strategic decision-making and enhanced confidence in pricing contracts and embarking on new projects. The construction industry’s resilience and adaptability have been brought to the forefront, underscoring the significance of ongoing research and adaptive strategies.
Construction projects such Sylvia Waters further highlights how the industries is stabilizing. Sylvia Waters gives you the freedom to take your time and create your dream home exactly as you envision it, without feeling rushed or pressured to meet specific timelines. This means you can embark on the journey of creating your dream home with peace of mind, knowing that you can take your time to ensure every detail aligns with your personal style, preferences, and needs without the pressure of rigid time restraints. Additionally, you can carefully consider your budget and make informed decisions. You can explore different cost-saving options, obtain multiple quotes, and negotiate favourable deals with suppliers and contractors.
To find out more about Sylvia Waters and what blocks we have available, contact our team at Division.
