CoreLogic’s national Cordell Housing Index Price rose by 1.0 per cent over the three months to December 2020, after the previous quarter increased by a lower 0.6 per cent.
The Cordell Housing Index Price (CHIP) measures the rate of change of construction costs within the residential market and covers freestanding and semi-detached single and two-storey dwellings.
The final index for 2020 showed residential construction costs were 3.6 per cent higher annually. Meanwhile, figures show the consumer price index (CPI) increased by 1.6 per cent over the September 2020 quarter, compared to a fall of -1.9 per cent over the previous quarter which was largely driven by free child care and price falls in automotive fuels.
According to seasonally adjusted ABS figures, the total number of dwellings approved rose by 2.6 per cent in November, while employment in the construction industry, which accounts for around 9.2 per cent of the total workforce, increased by 2.0 per cent over the three months to November 2020.
Tim Lawless, Executive Director of Research at CoreLogic, says the CHIP index was building momentum through the final quarter of 2020, in-line with a surge in new residential house building activity.
“With dwelling approvals for houses at record highs, it’s likely we will see additional pressure growing on construction costs as demand continues to build for residential construction materials and resources.
“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 CPI ‘basket’ of goods.
“Although HomeBuilder is phasing out after March, it’s highly likely we will see a continuation in this trend towards higher residential construction costs. 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,” says Mr Lawless.
Key findings – Q4 CHIP Report
· Residential construction costs continued to rise over the December quarter with a 1.0% increase in the national CHIP. The latest quarterly increase was the highest over 2020.
· The New South Wales CHIP index increased by 0.7% over the December 2020 quarter, or 3.1 per cent year-on-year; lower than the national growth rate of 3.6 per cent.
· Victoria saw the second highest growth in the CHIP index, at 1 per cent in the December 2020 quarter. This was in-line with the national growth rate, after increasing by just 0.6 per cent over the previous quarter.
· Queensland had the highest monthly and annual growth of all the states through 2020. Its CHIP index rose sharply over the December 2020 quarter at 1.8 per cent, up from 0.6 per cent in the previous quarter.
· South Australia’s CHIP index increased by 0.7 per cent over the 3 months to December. Annual growth was the lowest of all states, increasing by 3 per cent year-on-year.
· The CHIP index for Western Australia rose by 0.7 per cent over the December quarter.