No End in Sight for Construction Cost Hikes

Construction costs are forecast to record big jumps in key markets across Australia this year, with Queensland hit especially hard, research from global property consultancy RLB has revealed.

An increase of 10.5 per cent is tipped for Brisbane, 12.6 per cent in Townsville and 11.5 per cent at the Gold Coast, according to the Rider Levett Bucknall Second Quarter 2022 International Report.

Outside the Sunshine State, Melbourne costs are predicted to climb 8 per cent, Perth 9 per cent, Sydney 6.9 per cent, Canberra 5 per cent, Adelaide 4.8 per cent while Darwin will grow a more modest 4 per cent.

RLB Oceania research and development director Domenic Schiafone said the Queensland cities were competing against each other, driving up costs.

“What we are being told is that because Brisbane is so busy with construction, projects on the Gold Coast can find it hard to find suppliers,” Schiafone said. 

“You have three cities in Queensland and they can all often end up competing with each other for resources.”

The report's predictions were based on the volume of work already done during the first quarter of 2022 and the known volume of work planned to begin during the rest of 2022.

It made the RLB confident that the industry is in a positive phase.

Construction cost increase by city in 2022

_{^Source: RLB International Cost Report, Second Quarter 2022} 

Schiafone said factors affecting the growth of the industry include recent or upcoming state and federal elections with state and federal governments investing heavily in the construction sector.

“RLB is seeing significant construction activity in road, rail, health, and social and affordable housing projects, aided by significant investment by all state governments.”

Victoria has seen large amounts spent on infrastructure and social and affordable housing as part of the Big Build while the recently elected South Australian premier has promised to review the planning process and wants to see more South Australian developers and workers in all projects across the state. 

Western Australia is seeing large amounts of investment in the expansion of Perth’s suburbs to the north and major roads upgraded in the southwest while Sydney has announced money for regional development of necessary infrastructure to unlock residential land. 

Crane index across all Australian cities

_{^Source: RLB International Cost Report, Second Quarter 2022} 

The RLB report also states that other factors are exacerbating construction costs from supply-chain disruptions to labour shortages. 

“Supply chain instability, shipping costs and the battle to secure appropriate levels of skilled labour are also all set to remain constant obstacles to the industry as we see out 2022, and move into 2023,” Schiafone said.

Tender prices have surged across all states with many suppliers unable to provide guarantees on availability and pricing and with rise-and-fall clauses being negotiated into contracts. 

“Head contractors have reported volatile pricing from the subcontract market, difficulty in pinning down pricing, and sub-contractors being selective in providing tenders, as many are at capacity or unable to secure labour,” Schiafone said.

Other issues the report raised included high fuel prices and timber supply concerns due to the Ukrainian conflict, China’s Covid policies disrupting supply chains and production, and an increased demand for construction due to the flooding in NSW and Queensland.

The report also anticipated a slowdown of the economy as the RBA raises rates.