HomeBuilder grant putting pressure on construction costs

Housing construction costs rose over by 1 per cent across the final quarter of 2020 as the industry grapples with historic building approval highs triggered by federal and state government incentives.

According to Cordell, construction costs lifted over the three months to December, after the previous quarter clocked an increase of 0.6 per cent. The index showed residential construction costs were 3.6 per cent higher annually.

National house approvals have now hit a new high after six consecutive monthly increases, with every state seeing a surge in December. Approvals for new detached homes surged by 16 per cent across December, the fastest pace in almost 20 years—since April 2001, as buyers rushed to take advantage of the federal government’s HomeBuilder stimulus payments.

Applications for the HomeBuilder grant reached hit 60,000 by year’s end, including more than 8,700 in NSW and 17,300 in Victoria.

The rapid increase in demand is now placing pressure on the price of materials and labour and in turn squeezing the budgets of home buyers and renovators.

Cordell housing price index

StateQuarterly growthAnnual growth
South Australia0.7%▲3.0%▲
Source: Corelogic

“With dwelling approvals for houses at record highs, it’s likely we will see additional pressure growing on constructions costs as demand continues to build for residential construction materials and resources,” Corelogic head of research Tim Lawless said.

“The lift in residential construction costs is likely to flow through to higher prices for built residential products and also place upwards pressure on inflation where housing costs receive the heaviest weighting within the Cordell pricing index ‘basket’ of goods.”

The industry is also being boosted by renovations, approvals for which rose 8.1 per cent in December and 37.1 per cent year on year. Employment across the construction industry, which accounts for around 9.2 per cent of the total workforce, also increased by 2 per cent over quarter.

Queensland recorded the highest monthly and annual growth of all the states through 2020, finishing the year with a 1.8 per cent lift across the quarter, up from 0.6 per cent in the previous quarter. Victoria saw the second highest growth, at 1 per cent, while South Australia still reports the lowest index score.

The federal government introduced the $25,000 HomeBuilder grant in June to help offset the coronavirus pandemic-induced downturn and initially provided a three month period to start construction. This has since been extended to six months to achieve the full grant.

“Although HomeBuilder is phasing out after March, it’s highly likely we will see a continuation in this trend towards higher residential construction costs,” Lawless said.

“It will take some time for builders to work through the pipeline of house approvals that have surged through the second half of last year.”

Written: 8 March 2021

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