Review Your Insurance Valuations and 10 Year Plans Now

Australian Construction Costs: A Three-Year Trend Analysis

As we are all aware, the Australian construction industry has been facing a sustained rise in costs in recent years. The data in this table highlights this trend over a three-year period, from 2022 to 2024, showing the percentage increase in construction costs across various property types in five major Australian cities: Adelaide, Brisbane, Melbourne, Perth, and Sydney.

Gradual rise or sudden spike?

While the table reveals a clear upward trend, it also suggests some interesting patterns in how construction costs have increased across the three years. We can see a difference between a more gradual rise between 2021 and 2022, and then instances of steeper increases in 2024.

For example, villa construction costs increased significantly in 2024 for Adelaide at 30.2% and Perth at 29.9% in one year, reflecting potential specific events or issues in these regions.

City-by-city breakdown

Interestingly, Sydney does not consistently have the highest increases across all property types and years. For instance, in 2023, Melbourne had the highest increases for villas (14.8%). However, Adelaide and Perth markets show significant increases in 2024 ranging around 25% to 30% in most property types. Different cities are susceptible to varying cost pressures depending on local factors and the property type being constructed.

Percentage increases in construction costs from year to year

A look at property types

Retail (neighbourhood shops) and villas have experienced a steeper rise in construction costs compared to other property types in 2024. This could be due to limited availability of skilled labour and the fluctuating prices of materials like steel and concrete that are heavily used in these buildings.

Understanding the trend

Several factors contribute to rising construction costs. The global economic climate, rising fuel costs, and the ongoing conflict in Ukraine can all play a role in increasing the prices of building materials and impacting supply chains. Additionally, skilled labour shortages in the construction industry have contributed to higher costs.

Potential implications

Delays in construction projects, potentially even higher property prices for buyers. This leads to increased insurance costs due to delays in remedial work in strata and community schemes, and under-insured schemes with the necessity to review insurance valuations and review 10 Year Plans earlier to ensure adequate budgeting allowances.

Other factors

While the data presented offers valuable insights, it is important to acknowledge that it represents a limited snapshot of a complex market. A more comprehensive understanding would require additional data points and industry expertise for example, in NSW the introduction and implication of the Design and Building Practitioners Act 2020 has significantly increased costs in remedial and other work for strata and community properties.

Where to from here

As Valuers, we make a reasonable assessment of the future projection in construction costs over time. However the facts are clear, and the escalation of construction costs demonstrated above indicates that earlier future projections would have to be adjusted upwards to make allowance for the now available evidence.

All Valuations and 10 Year Plans should be reviewed in light of the evidence above.