The slowing increase in home construction costs is a good sign for builders, their customers and the inflation outlook.
The costs of labor, materials and other construction services have been rising sharply for some time, but CoreLogic’s latest index suggests that prices are gradually easing.
The 0.5 percent increase in construction costs in the June quarter was lower than the 0.8 percent increase in the previous three months and is one percent compared to the average of the decade before the COVID-19 pandemic.
Costs rose by just 2.6 percent annually, the slowest rate in 22 years.
While falling prices for wood and metal products contributed to pressure on the construction cost index, other important construction cost factors such as labor costs remained high.
Tim Lawless, head of research at CoreLogic, said the slowdown in housing cost growth was a welcome development in the fight against inflation.
Housing costs are an important input into the housing component of the Consumer Price Index, which is the main inflation indicator used by the Reserve Bank of Australia to set interest rates.
However, Lawless said the central bank was likely to see less progress on rents, another component of the index.
Despite slowing growth, Australia remains an expensive location for construction and renovation, with costs still around 30 percent higher than before the pandemic.
“It is likely that the moderation in construction cost growth over the past six months, together with higher established property prices, will help gradually restore builders’ profit margins and lead to greater confidence in pricing for new builds and renovations,” Lawless said.