The latest CoreLogic residential construction costs report (CHIP- September quarter), out last week, confirmed costs associated with housing construction continued to rise over the September quarter. 

The National CHIP Index reported a 1.1 per cent rise over the three months to September 2019, up 3.7 per cent year-on-year.

Over the June 2019 quarter, growth in the CHIP index was a lower 0.5 per cent. 

With the exception of the previous quarter, quarterly growth in residential construction costs has been fairly consistent over the past year.

The National CHIP index began to diverge from growth in CPI around 2003, and since then, quarterly inflation has averaged 0.6 per cent, while quarterly growth in the building price index has averaged 1.1 per cent.

Market Influencers: 

 Growth in employment in the construction industry increased over the three months to August 2019, up 1.2 per cent according to the latest ABS data (trend series), while rising 0.5 per cent year-on-year. Over the past 5 years, employment in the construction industry has increased by 14.1 per cent.
 On October 1 the Reserve Bank announced its decision to lower the cash rate by a further 25 basis points, after slashing interest rates by fifty basis points in June and July, taking the official cash rate to a record low of 0.75 per cent.
 Lower interest rates together with a subtle loosening in credit policies and improved housing sentiment has seen the housing market make further progress towards a recovery.
 Dwelling approvals are trending lower, down 19 per cent compared with last year, however stronger housing conditions should help support the residential construction sector over time. 

NSW 

September NSW CHIP Index: 291.5
Quarterly Growth: 1.2 per cent
Annual Growth: 4.3 per cent 

The NSW Chip Index showed residential construction costs were up 1.2 per cent over the September 2019 quarter, after the previous quarter increased by just 0.6 per cent.

Annual growth was higher than the national rate, increasing by 4.3 per cent in September 2019 and September 2018.

The annual increase in the New South Wales CHIP Index (4.3 per cent) was the highest annual growth rate of all the states and territories. 

The most recent CPI figures for NSW show CPI increased around 0.7 per cent over the three months to June 2019, slightly higher than the national growth rate (0.6 per cent). 

The CoreLogic hedonic indices released in October suggests that Sydney dwelling values are beginning to bounce-back.

The value of dwellings across Sydney was up 3.5 per cent over the three months to September.

House values across regional New South Wales were down 0.2 per cent over the quarter, although saw a slight improvement month-on-month (0.1 per cent). 

Victoria 

September Vic CHIP Index: 279.3 

Quarterly Growth: 1.2 per cent
Annual Growth: 3.9 per cent 

Although the Vic CHIP index is lower than the national figure (287.5), the quarterly increase in Victoria’s residential building price index (1.2 per cent) is currently higher than the increase in building costs across Australia (1.1 per cent).

The previous quarter saw an increase of just 0.6 per cent in the Vic CHIP index.

Annual growth in Victoria’s CHIP index was 3.9 per cent, which was the second highest annual growth rate of all the states and territories, behind New South Wales. 

CoreLogic’s home value index released in October saw the national index post the largest monthly gain since March 2017, largely driven by a strong rebound in Sydney and Melbourne where values were up 1.7 per cent over the month.

The strong rebound in Sydney and Melbourne housing markets relative to other regions, can be attributed to a variety of factors, while all regions are benefitting from low mortgage rates and improved access to credit, economic and demographic conditions in New South Wales and Victoria continue to outperform most areas of the country.

Population growth is higher, unemployment is lower and jobs growth is stronger, providing a solid platform for housing demand. 

A rebound in dwelling prices across the state may see the cost of construction continue to rise. 

Queensland 

September Qld CHIP Index: 304.7
Quarterly Growth: 1.0 per cent
Annual Growth: 3.4 per cent 

According to the Qld CHIP index, residential construction costs for Queensland rose by 1.0 per cent over the September quarter of 2019 after the previous quarter recorded a growth rate of 0.5 per cent. 

Annual growth in Queensland’s CHIP index was 3.4 per cent which is lower than the annual increase in building costs seen across Australia (3.7 per cent). 

The highest growth rate in Queensland’s CHIP index over the past 10 years was in the September 2012 quarter, when the index rose 2.1 per cent.

Quarterly CPI growth was also at a high, increasing by 1.7 per cent over the same period. 

Queensland’s CPI increased by around 0.6 per cent over the June quarter, in line with the national growth rate. 

WA 

September WA CHIP Index: 284.9
Quarterly Growth: 0.8 per cent
Annual Growth: 2.7 per cent 

The CHIP index for WA increased by 0.8 per cent over the three months to September, up from 0.4 per cent in the previous quarter, while the annual growth rate in construction costs increased by 2.7 per cent.

The most recent figures show WA CPI grew 0.7 per cent over the three months to June, higher than the national CPI growth rate and the largest quarterly increase the state has seen since June 2014. 

CoreLogic’s hedonic indices released in October reported Perth as being the weakest performing capital city over the three months to September 2019, with dwelling values falling 1.9 per cent and down 9.0 per cent annually.

Regional WA was also weak, with dwelling values falling 11.4 per cent over the 12 months to September. 

SA 

September SA CHIP Index: 267.1
Quarterly Growth: 0.5 per cent
Annual Growth: 2.6 per cent 

South Australia continues to report the lowest CHIP Index at 267.1. Quarterly growth in the SA CHIP Index was the lowest of all states and territories, rising by 0.5 per cent over the three months to September.

The quarterly change in the CHIP index has been below 1 per cent each quarter this year.

South Australia saw the CHIP index rise by 2.6 per cent over the 12 months to September 2019, the lowest annual increase in the house construction price index since mid-2014.

The 12 months to September 2018 saw a 3.3 per cent rise in the CHIP index. 

The CoreLogic home value index saw Adelaide house values fall 0.7 per cent over the 3 months to September, similar to regional SA where house values were down 0.6 per cent over the same period.

You can find the CoreLogic report here.

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