Latest reports say the building industry is still experiencing big price rises in construction materials, especially steel and timber products, due to geopolitical risks, as well as supply and shipping issues.
Root Causes of Price Inflation
Three things caused this:
- The Black Summer Bushfires in 2019/2020 burnt a lot of local hardwood and softwood
- Australia used to import 25% of our timber and that became impossible to do with shipping constraints
- The Government Home Builder Scheme created more demand for materials than supply
- Additionally, rising labour costs have contributed to the increase in concrete prices and other material costs, driven by elevated energy prices and higher manufacturing expenses.
Consumer Price Index and its Impact
The Consumer Price Index (CPI) is a crucial indicator of inflation and economic activity, measuring the change in prices of a basket of goods and services consumed by households. In the context of construction, the CPI has a significant impact on building costs, as it reflects changes in the prices of materials, labour, and other inputs.
A rising CPI can lead to increased construction costs, making it essential for builders and homeowners to factor in these changes when planning and budgeting for construction projects.
The CPI’s impact on construction costs is multifaceted:
- Material costs: Changes in the CPI can affect the prices of building materials, such as lumber, steel, and concrete, which are essential components of construction projects.
- Labour costs: As the CPI rises, labour costs may also increase, as workers demand higher wages to keep pace with inflation.
- Housing costs: The CPI’s impact on housing costs is particularly significant, as it can affect the affordability of housing and the demand for construction projects.
To mitigate the impact of a rising CPI on construction costs, builders and homeowners can consider strategies such as:
- Indexation clauses: Including indexation clauses in contracts can help adjust payments and charges to account for changes in the CPI.
- Price escalation: Factoring in price escalation clauses can help account for potential increases in material and labour costs.
Value engineering: Implementing value engineering techniques can help optimise construction costs and reduce the impact of CPI-related price increases.
Global Supply Chain Issues
The industry is still facing big supply chain disruptions. While pandemic related issues have eased, new ones have emerged.
Diesel prices have recently returned to pre-COVID levels due to diminished global demand and increased production, offering financial relief for transportation and logistics in the construction sector. Reports say container shipping costs from Asia have stabilised but are higher than pre-2020 levels.
International Supply Dependencies
According to the Department of Foreign Affairs and Trade, 2024 import reliance continues to significantly impact the construction sector.
Structural steel imports, primarily sourced from Asia, account for 65% of usage, while timber product imports have decreased to 35% from 45% in 2022. The industry remains heavily dependent on imported hardware and fixtures at 80%, with cement products maintaining a 25% import rate.
These market dynamics, including supply and demand fluctuations, directly affect the cost of raw materials in the construction sector.
Material Alternatives and Sustainable Solutions
According to the Forest and Wood Products Australia, significant shifts are occurring in construction material preferences and sustainability solutions.
Steel framing has experienced a 12% decline since mid-2023, while engineered wood products such as LVL and I-joists are now utilised in 45% of new residential construction. While structural timber prices have shown a slight uptick, overall demand remains subdued due to high inventory levels and a slowdown in housing construction.
The industry is also seeing progress in sustainable alternatives, with recycled aggregate concrete solutions offering 15-20% cost savings, and composite materials for non-structural applications reducing timber dependency by up to 30%.
Current Building Costs by City
Rising building construction prices, driven by factors such as labour shortages and increased demand for construction services, have significantly impacted overall costs in different cities.
Adelaide
The South Australian building and construction industry is going strong, supporting economic recovery. The government has put funding towards skills training and apprentice support to address labour shortages.
Input prices for house construction have only increased slightly over the past year in Adelaide, indicating a shift towards pre-COVID market conditions.
Building Materials Price Increase
| Bar reinforcement | 10% |
| Brickwork Labour | 5% – 10% |
| Brickwork Supply | 3% – 5% |
| Concrete | 5% – 8% |
| LVL, Laminated Beams | 15% |
| Plasterboard Accessories | 6% |
| Reinforcing Steel | 30% – 35% |
| Structural Steel | 35% – 50% |
| Timber Supply | 80% – 50% |
Brisbane
Building contractors are still submitting tenders to complete work. Meanwhile, tender activity is still strong but uncertainty around supply and demand is impacting project timelines and causing longer contract durations.
Producer price indexes reflect trends in input prices for construction in Brisbane, highlighting shifts in demand and pricing dynamics post-COVID.
Building Materials Price Increase
| Aluminium doors and windows | 17% |
| Timber framing | 15% |
| PVC supply | 20% |
| Roofing and purlins | 10% |
| Concrete | $10/cum |
| LVL, Laminated Beams | 15% |
| Plasterboard | 4% |
| Reinforcing Steel | 10% |
| Structural Steel | 17% |
Canberra
Timber and steel products have increased since March 2021 due to overseas demand. While supply issues are improving a new price benchmark has been set. Apartment construction is going strong due to buyer demand and low interest rates.
The Wage Price Index (WPI) in the construction industry in Canberra has shown a growth of 1.1% in Q3 2024 and a 3.5% annual growth. These wage pressures are contributing to rising costs in the construction sector, although some stabilising trends are emerging.
Building Materials Price Increase
| Blockwork | 5% |
| Brickwork | 5% |
| Concrete | 7% |
| Timber Supply | 45% |
| Reinforcing Steel | 25% |
Hobart
Hobart’s material price increases and contractor availability are the main issues, with tender pricing being squeezed. Contractors are fully booked until next year, projects are limited.
Building Materials Price Increase
| Timber Supply | 15% |
| Reinforcing Steel | 20% |
Melbourne
Melbourne’s infrastructure is still going strong despite COVID-19 restrictions. Labour and material shortages are driving price increases.
Building Materials Price Increase
| Timber Supply | 10% – 15% |
| Reinforcing Steel | 10% – 15% |
| Concrete | 5% – 10% |
| Structural Steel | 10% – 15% |
Perth
Recent studies reveal industry stimulus, and packages are having a big impact on contractor tender prices. The mining sector is still influencing construction prices, but Perth’s lower residential price point is attracting interstate growth.
Building Materials Price Increase
| Brickwork Labour | 30% – 50% |
| Fabric Reinforcement | 50% |
| Formwork | 5% – 10% |
| Structural Steel | 25% |
| Timber Supply | 35% |
Sydney
Construction was growing across all sectors before the latest restrictions. Border restrictions and lockdowns have impacted supply chains and import times but confidence is expected to improve as restrictions ease.
Building Materials Price Increase
| General Labour | 6.5% |
| Concrete | 2.5% |
| Brickwork Labour | 5.5% |
| Blockwork | 3% |
| Brickwork | 3% |
| Timber Supply | 5% |
Methods for Estimating Material Quantities
Estimating material quantities is a critical step in construction project planning. Accurate estimates can help ensure that the right materials are ordered in the right quantities, reducing waste and minimising delays. Here are some methods for estimating material quantities:
- Takeoff method: This method involves manually measuring and calculating the quantities of materials required for a project.
- Software-based estimation: Using specialised software can help streamline the estimation process and improve accuracy.
- Historical data analysis: Analysing historical data from previous projects can help identify trends and patterns in material usage.
To improve the accuracy of material quantity estimates, consider the following best practices:
- Use detailed drawings and specifications: Ensure that drawings and specifications are detailed and accurate to facilitate accurate estimation.
- Conduct site visits: Visiting the construction site can help identify potential issues and ensure that estimates are realistic.
- Collaborate with suppliers: Working closely with suppliers can help ensure that material quantities are accurate and that lead times are realistic.
Skills Shortage Impact
According to the Department of Employment and Workplace Relations, the construction industry is facing a significant shortfall of 50,000 skilled workers nationwide. The Construction Training Fund has outlined several current initiatives to address this challenge, including a $2 billion federal training program targeting critical trades and fast-tracked visa processing for skilled construction workers.
Additionally, industry-led apprenticeship programs offering 90% wage subsidies have been implemented, while key trades are experiencing substantial average wage increases of 15-20%.
These wage increases and training programs are contributing to rising labour costs in the construction industry.
Strategies for Builders and Homeowners
Builders and homeowners can employ various strategies to manage construction costs and mitigate the impact of rising material costs.
Value engineering techniques can be implemented to optimise construction costs and reduce waste, while considering alternative materials can help reduce costs and improve sustainability.
Building strong relationships with suppliers through effective supply chain management ensures materials are delivered on time and at the right price. To stay ahead of the curve, builders and homeowners should actively monitor market trends and changes in material prices to inform construction decisions.
Working with multiple suppliers helps reduce dependence on a single source and improves negotiating power, while leveraging technology such as building information modeling (BIM) and construction management software can streamline processes and improve efficiency.
2025 Construction Material Forecast
According to Construction Forecasting Council:
- Timber prices will stabilise by Q3 2025
- Steel prices will drop 8-12% as global production increases
- Concrete prices will rise 5-7% per annum due to energy costs
- Labour rates will rise 4-6% per annum to 2025
Future price trends for construction materials in the construction industry will be influenced by supply and demand dynamics, inflation, global market influences, and sustainability initiatives.
Major projects like the Western Sydney Airport and Melbourne’s Suburban Rail Loop will continue to impact material availability for residential construction.
Factors to Consider When Deciding to Buy or Build
When deciding whether to buy or build a home, there are several factors to consider. Here are some key considerations:
- Construction costs: Understanding construction costs, including material and labour costs, is essential for making an informed decision.
- Timeframe: Considering the timeframe for construction and the potential for delays is critical.
- Customisation: Building a home offers the opportunity for customisation, which can be a significant advantage for some homeowners.
To make an informed decision, consider the following:
- Research local market conditions: Understanding local market conditions, including demand and supply, can help inform the decision to buy or build.
- Consult with experts: Working with experts, such as architects, engineers, and contractors, can help provide valuable insights and guidance.
- Consider sustainability: Considering the sustainability of the construction process and the finished product is essential for environmentally conscious homeowners.
Key Takeaways
- The Australian construction industry is experiencing unprecedented growth, with housing demand exceeding available supply.
- Market conditions are expected to persist as prices climb above inflation rates, primarily due to nationwide labour and material shortages affecting all construction sectors.
- Building construction costs are projected to rise significantly, driven by increasing output costs, workforce shortages, and heightened demand for construction services.
- While contractors are currently absorbing some price increases, this practice is unsustainable if cost escalation continues.
Those planning construction projects should anticipate and budget for substantial cost increases over the coming quarters.
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Tuan is an award winning Quantity Surveyor and leads Duo Tax Quantity Surveyors – Australia’s fastest growing provider of Tax Depreciation.
