27/05/2022 - 15:26

Build cost hikes hit WA hardest

27/05/2022 - 15:26


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HIA says WA has experienced a 30 per cent rise in construction prices in the past 18 months, but the longer-term outlook is positive.

Build cost hikes hit WA hardest
Tim Reardon sees a positive longer term outlook for WA.

Western Australia has copped the brunt of national construction price increases during the pandemic, with the Housing Industry Association reporting a 30 per cent lift in WA build cost in the past 18 months.

Speaking at a lunch today, HIA chief economist Tim Reardon said anecdotal figures show a 30 per cent lift in WA, higher than the other states.

In that same period, Mr Reardon said construction costs have risen between 16 per cent in Melbourne, 24 per cent in Sydney and up to 27 per cent in Queensland.

“Essentially, the further you are from Sydney and Melbourne, the higher those price increases are,
 he said.

“Here you’re looking at a number that’s very close to 30 per cent; Western Australia has seen the worst of that material shortage [and] probably the worst too in terms of labour shortage.”

He said steel and timber prices were driving the massive lift in material costs, with a 42 per cent lift in the cost of steel in the 12 months to March this year and a 21 per cent lift in timber prices.

Mr Reardon added that the volume of steel framed homes had lifted from 11 per cent to 18 per cent since pre-COVID levels nationally, compounding supply limitations.

He added that the availability of materials was expected to pick up over the next 12 months, but the price was not likely to drop.

He said the nation had seen the worst of the cost escalation, however.

“The worst of the increases are over, but that doesn’t mean prices will come off,” he said.

Mr Reardon added that confidence was Western Australia’s only issue when it came to the housing market.

“The rest of the country knows house prices are going to go up, but WA doesn’t have that, because house prices [here] are only back to where they were in 2014,” he said.

“WA talked itself into a contraction [of house prices] in 2018-19, when employment was strong, wage growth was high and migration was high; you should’ve seen the market pick up, but it didn’t because of the confidence problem.”

He said WA would continue to see migration flows as its unemployment was low and wages were high, and low supplies of housing stock meant new builds were the only option for many homeowners.


The HIA forsees a positive medium-term outlook for Western Australia’s residential housing market, but expect build starts to dip in the short term as the market hits capacity.  

HIA’s latest economic outlook for WA stated that the recent 0.25 per cent increase to the cash rate could lead to a slowdown in new home builds over the next year.

“This rate rise alone will have a negligible impact on the record volume of homes commencing construction in Australia,” it read.

“But subsequent increases in the cash rate will eventually constrain household expenditure and demand for new homes.”

Globally, key economies started a tightening of monetary policy from late last year, HIA noted.

“Just as this global boom in building activity is linked to a reduction in the official cash rate, it will be the rising of interest rates that bring it to and end,” it read.

“Affordability constraints have started to bind as the cost of new home construction increased faster than wage growth and the cost of borrowing increases.”

The report added that the rate rise has led to a dent in consumer confidence and a slowing in the leading indicators of new home building.

In 2021, there were 21,730 detached dwelling starts in WA, up 63.9 per cent on 2020 but down 11.3 per cent on the state’s previous peak in 2014 during the mining boom.

HIA’s forecasts show detached starts in WA are expected to decline to 17,710 this financial year, down from 23,985 in 2020-21, but lift by 2.9 per cent the following financial year to 18,230.

Housing starts are then forecast to decline by 8.5 per cent in 202-24 to 16,670, largely due to rising interest rates.

HIA expects detached starts to drop to 16,050 in 2024-25, before returning to growth.

“This is still a relatively good year for the detached market compared to the post-mining boom slump,” the report read.


Multi-residential builds declined significantly in the December quarter, at 510 unit starts, down 63 per cent drop from the previous quarter.

In 2021, there were 3,830 multi-unit starts, a 35.9 per cent increase on 2020.

As overseas migration returns and affordability constraints continue, demand for multi-residential units will increase, HIA said.

HIA forecasts estimate multi-residential starts in WA to increase by 23.6 per cent in 2022-23 and 11.6 per cent in 2023-24 to reach 4,750.

It expects a further 5.5 per cent growth in 2024-25 and 7.1 per cent in 2025-26 to 5,370, the strongest financial year for multi-units in Western Australia since 2015-16.





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