New home construction costs rise in Perth,
The cost of constructing new homes in Perth continues to rise significantly. This increase is putting pressure on the established housing market.
According to CoreLogic’s latest Cordell Construction Cost Index, residential building costs increased by 1 percent during the September quarter. This growth aligns with the average from the pre-COVID decade.
Moreover, this data represents an increase from the previous quarter’s 0.5 percent rise. Additionally, it marks the strongest quarterly increase since December 2022.
Over the twelve months leading to September, construction costs rose by 3.2 percent. This figure is up from 2.6 percent recorded over the twelve months to June.
However, it is lower than the 4 percent rate from the same time last year. CoreLogic economist Kaytlin Ezzy noted that this data could pressure the federal government’s housing target.
For Western Australia, the target is to build 125,000 new homes within five years until mid-2029. With the official start date in July, achieving this goal is becoming increasingly difficult.
The goal involves constructing 1.2 million new homes over five years in well-located areas. Consequently, the recent rise in construction costs adds more challenges to meeting this target.
During the year leading to June, approximately 176,000 dwellings were completed. This number falls 26.6 percent below the annual target of 240,000 homes.
Currently, there are 250,000 homes in the national construction pipeline. However, the slow rate of new dwelling approvals indicates a future project shortfall.
According to UDIA WA analysis, Western Australia will be about 30,000 homes short by mid-2029. Additionally, the state is projected to be 33,500 homes short of the national target.
Recently, data from the HIA New Home Sales report indicated that sales in Western Australia were the second-worst in the nation.
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New South Wales experienced the largest decline at 25.5 percent. Following this, Western Australia saw an 18.4 percent decrease.
Victoria faced a decline of 11.7 percent as well. Strategic Property Group managing director Trent Fleskens commented on Western Australia’s housing target challenges.
He stated it was “highly unlikely” WA would reach its goal of 125,000 new homes before 2029. Fleskens explained that this housing boom is driven by two main factors: cost inflation and mass immigration.
Unfortunately, neither of these factors is expected to decrease significantly anytime soon. To meet the housing target, building rates must exceed historical averages.
Additionally, the trade base per capita is the lowest seen in a generation. Fleskens emphasized that if demand remains constant, prices will continue to rise.
Furthermore, he mentioned that for consumers to find value in new housing supply, costs must align closely with established home prices.
As a result, as new home building costs rise in WA, the established market will also follow suit.
Home loan expert Mansour Soltani from money.com.au discussed the latest mortgage insights report findings. He noted that wage growth has not kept pace with rising new home construction costs.
In the past five years, wages increased by only 15 percent. Meanwhile, the cost of new dwellings surged by 39 percent—almost three times faster than wage growth.
This means that a household earning $100,000 five years ago faced higher costs for a new home. They would now be looking at a new home costing $970,000 on a wage of $115,000.
