Construction costs appear to be climbing again as inflation continues to hamper new building projects and provides a sober reminder for renovators and buyers of new homes that your budget can get blown out of the water.
Building materials became 0.5% more expensive in the June quarter, following an increase of 0.4% in the March quarter, according to industry researcher Cotality.
While these increases do not sound extreme, they’re a signal that owners who plan to renovate should consider rising expenses when they decide to take on a project.
For those looking to commission a build on vacant land, a similar consideration is relevant. And again, it’s worth considering the budget risk against moving into an existing home.
Cotality’s Research Director, Tim Lawless, pointed to the annual rate of growth (ending June 2025), which saw construction costs increase by 2.9%, up from 2.6% over the 12 months to June 2024.
He called the number “stronger than expected”.
He said: “Growth in residential construction costs has increased a little compared to the previous quarter. However, when compared to the long-term average, the increase is tracking at half the pre-pandemic decade average of 1%.”
“The reacceleration is likely to weigh on inflation outcomes with the cost of new dwellings comprising the largest weight in the CPI calculation.”
Cotality (formerly CoreLogic) said its latest data reinforced the July decision of the Reserve Bank of Australia (RBA) to maintain the cash rate at 3.85%. The RBA explicitly highlighted the reacceleration of growth in the cost of new dwellings.
The Australian Government’s 2029 target to build an additional 1.2 million new homes “is looking harder and harder”, said Mr Lawless.
“Builders are struggling with feasibility assessments amid a combination of high material and labour costs,” he said.
Cotality observed that competition for skilled trades remained intense amid a record level of public infrastructure spending.
Infrastructure Australia forecasts a mismatch between the demand and supply of labour until mid-2028.
Here are six reasons to consider buying an existing home against a backdrop of rising building material costs:
Cost certainty – When you buy an existing home, the price is largely set at the point of purchase (barring any significant, unforeseen issues). You know exactly what you’re paying.
Faster move-in – Buying an established home means you can typically move in relatively quickly after settlement, often within a few weeks to a couple of months. This is a huge advantage if you’re on a tight timeline, need to relocate for work or family, or simply want to avoid prolonged rental periods.
Established amenities – Existing homes are typically located in established suburbs with mature infrastructure. This means immediate access to existing schools, public transport, shops, parks and community facilities.
Known quantity – With an existing home, what you see is what you get. You can walk through the property, assess its condition, understand its layout and gauge the natural light and flow.
Potential for renovation – While the upfront cost of an existing home might be similar to, or even higher than, building new in some areas, older properties often offer significant potential to add value through renovation.
Established landscaping – Mature gardens, trees and established landscaping add immense value, aesthetic appeal and privacy. These elements take years, even decades, to cultivate.