Australian construction price outlook – Q4 2024

Overview

Escalating trade tensions, driven by the Trump administration's tariff policies, present a series of ‘unknowns’ across energy and material costs, supply chains and investor appetite. Global geopolitical tensions in the Middle East and Ukraine add further unpredictability.

China is Australia’s largest export market. Measures that slow China’s economy could reduce demand for Australian resources, directly impacting mining revenues, government royalties and budgets. This will likely influence domestic investment decisions relating to infrastructure expenditures.

The Reserve Bank of Australia’s decision to cut the cash rate to 4.1% was quickly matched by the banks, offering a small boost to confidence in the housing market. However, the RBA noted a “high degree of uncertainty” surrounding the Trump administration's policies, particularly the inflationary impact of new tariffs.

Developers with stalled projects are likely to continue their wait-and-see approach, especially in the lead-up to the federal election. Lower interest rates may reduce financing costs for new developments, but the ongoing uncertainty may temper this potential benefit.

The Australian dollar hit a five-year low in February before recovering slightly, reflecting ongoing economic uncertainty. If trade relations deteriorate further, the dollar could slide again. While a weaker dollar boosts export competitiveness, it also raises import costs.

The construction sector remains at the epicentre of Australia's insolvency challenge. According to ASIC, 1,943 construction companies have been liquidated in the financial year to January 2025, up from 1,518 the previous year. These insolvencies can lead to higher project costs through delays, disrupted supply chains and higher subcontractor costs as builders compete for reliable trades.

High-profile failures of material manufacturers, most recently Oceania Glass, show ongoing financial strain within the supply chain. Competitive pressures from cheaper Chinese imports, combined with elevated domestic energy and labour costs, suggest further turbulence ahead.

Dwelling approvals rose 0.7% in December 2024, up 12.2% year-on-year, driven by increased approvals for high-density dwellings. This is positive news. However, private-sector housing remains sluggish, with elevated costs and tight margins stalling new developments. Prefabricated construction offers some potential, with the Commonwealth Bank introducing mortgage products for prefab homes. However, this innovation is likely to be limited to regional and rural markets where demand for low-rise solutions is greater.

Despite the shifting sands of global and domestic politics, Australia’s jobs market remains strong and population growth continues to drive demand for real estate and construction. In 2025, resilience will depend on agility: staying alert to change, responsive to new opportunities, and ready to adapt when the sands shift beneath your feet.

Outlook on construction cost escalation

Altus Group combines our market intelligence with a range of reliable and robust data sources, including those from the Australian Bureau of Statistics and the Australian Institute of Quantity Surveyors, to provide national price indicators. These prices are subject to market movements.

| |Figure 1 - Altus Group's outlook on construction cost escalation

Note: These figures are general, and individual projects and asset classes may have dramatically different spreads of costs. Previous forecasts were made in September 2024.

Source: Altus Group

Material price snapshot

We’ve updated our escalation forecasts to reflect shifting dynamics across state markets. While New South Wales and Victoria ease off on infrastructure spending, taking some heat out of the Sydney and Melbourne markets, Perth is pushing ahead with strong growth. Meanwhile, Queensland remains under pressure, driven by the 2032 Brisbane Olympics deadline and ongoing recovery efforts from recent natural disasters.

Escalation rates remain highly variable, depending on project type, size, location and materials. Given these complexities, it is essential to consult professional quantity surveyors to evaluate project-specific costs and escalation factors. Tailored assessments ensure accurate forecasting and risk management.

Figure 2 - A snapshot of Australian construction material price trends – Q4 2024

| |Figure 3 - Altus Materials Escalation Index (Australia)

Material price movements

Energy-intensive materials, such as concrete and bricks, continue to increase in price, while imported materials from China continue to decline, offering some relief for builders sourcing international products.

Structural steel and rebar: Steel trading prices have fallen with weakening demand. Global steel production was down 0.8% in 2024, although the World Steel Association expects to see a broad-based recovery, excluding China in 2025. Global steel demand is forecast to rebound by 1.2% in 2025. Steel prices are expected to remain subdued.

Concrete: Rising concrete prices reflect the material’s energy-intensive production process amid persistent energy cost pressures. The World Cement Association forecasts global cement demand is likely to decline to 3 billion tonnes per annum by 2050, far below existing forecasts. Clinker demand, the main source of greenhouse gas emissions in cement production, is expected to decrease even more steeply. Softening demand in the near-term suggests prices may stabilise.

Structural timber: Australia’s housing construction slowdown and high inventory levels have kept timber prices relatively stable, with minimal volatility anticipated.

Plasterboard: Plasterboard prices have levelled off this quarter after a significant increase over the year. With demand remaining weak, no further price hikes are anticipated.

Bricks: Brick prices increased this quarter and annually. Brick manufacturing cost hikes have been driven by surging energy costs – as brick kilns are reliant on natural gas – and transport costs. Furthermore, brick production is labour-intensive.

Copper: Copper prices have stabilised this quarter after a period of significant growth. Demand remains strong, particularly in electrical equipment, wiring and electric vehicle manufacturing. The global energy transition and demand for data centres are both driven by copper consumption.

Diesel: Diesel prices have fallen to pre-pandemic levels due to lower global demand and increased production. This reduction provides some transportation and logistics cost relief. According to the Australian Institute of Petroleum, Australia has among the lowest diesel prices of all OECD countries.

Macro-economic review

Consumer Price Index 

| |Figure 4 - All groups CPI, Australia, quarterly and annual movement (%)

Australia’s Consumer Price Index (CPI) increased by 0.2% in the December 2024 quarter, bringing the annual inflation rate to 2.4%. Housing costs declined by 0.7% for the quarter but remained 1.0% higher over the year. Electricity prices were slightly lower and a slight drop in new dwelling costs was recorded. Insurance and financial services rose 0.8% for the quarter and 5.4% for the year.

While the overall inflation rate has moderated, underlying measures of inflation – like the trimmed mean and weighted median – are still rising. Both these measures increased by 0.5% for the quarter and remained above 3% for the year, suggesting that inflation is still a concern in core areas of the economy, even if headline inflation is easing.

Producer Price Indexes – Input 

| |Figure 5 - Producer Price Indexes (PPI) - Input, Australia

Housing construction input prices – encompassing land, materials, fees, permits, professional services, equipment and worker-related costs – have stabilised, rising by just 0.5% in the December 2024 quarter. Input prices have returned to pre-pandemic conditions, largely driven by lower demand for new construction. Suppliers have responded with discounts on early-stage materials, such as structural timber, partially offsetting increases in other areas. Over the past 12 months, input prices for house construction have grown by 1.6%.

Producer Price Indexes – Output

| |Figure 6 - Producer Price Indexes (PPI) – Output, Australia

Output prices – the charges set by contractors for services including labour, profit margins and contingencies – continue to climb. The latest quarter saw a small increase of 0.4% in building construction prices, contributing to a 4.3% annual rise. Shortages of skilled tradespeople remains the primary driver of increasing output prices.

Wage Price Index

| |Figure 7 - Wage Price Index (WPI), Australia

The seasonally adjusted Wage Price Index (WPI) for the construction industry grew by 1.1% in the September quarter of 2024 and 3.5% over the past year, equivalent to the national average of 3.5% annual growth. Wage pressures have been a significant contributor to the rise in the Construction Producer Price Index for output, further exacerbating overall construction cost increases.

Building approvals

| |Figure 8 - Building Approvals, Australia

In December 2024, total dwelling approvals increased by 0.7% monthly and 12.2% annually, while private sector house approvals fell by 3.0%. In contrast, approvals for non-house dwellings (e.g., apartments) surged by 15.2%, indicating a shift toward higher density living.

The decline in house approvals reflects a cautious market influenced by economic uncertainties and higher financing costs. Without targeted measures to boost private residential construction, achieving the national target of 1.2 million new homes by 2030 appears increasingly unlikely.

Studies have shown that efficiency and productivity are down which is adding to time in construction and cost. Adoption of the likes of Lean Construction can address this and boost output, but will require a change in approach of designers and market expectations.

Summary

The overarching message from market movements this quarter? Tune out the distracting noise.

The months ahead will be shaped by global trade negotiations, domestic politics and broader macroeconomic forces – factors beyond the control of industry players. Project teams can stay grounded by focusing on what they can control.

While headlines may amplify uncertainty, the fundamentals of supply and demand will continue to influence construction costs and budget bottom lines. In a volatile market, clarity comes from informed, level-headed analysis. The experienced professionals at Altus Group can help you navigate the shifting sands with confidence.

Methodology

Market research into the supply cost of core materials is conducted on a quarterly basis with manufacturers and suppliers. Our market assessment also involves a thorough analysis of secondary sources of market data on materials and labour prices.

These sources include the Australian Bureau of Statistics (ABS), the Australian Institute of Quantity Surveyors (AIQS), Fuel Price Index, Metal and Raw Material Price, and proprietary cost data from Altus Group.

Disclaimer

This publication has been prepared for general guidance on matters of interest only and does not constitute professional advice or services of Altus Group, its affiliates and its related entities (collectively “Altus Group”). You should not act upon the information contained in this publication without obtaining specific professional advice.

No representation or warranty (express or implied) is given as to the accuracy, completeness or reliability of the information contained in this publication, or the suitability of the information for a particular purpose. To the extent permitted by law, Altus Group does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

The distribution of this publication to you does not create, extend or revive a client relationship between Altus Group and you or any other person or entity. This publication, or any part thereof, may not be reproduced or distributed in any form for any purpose without the express written consent of Altus Group.

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