The housing sector has been under pressure from rising construction costs and delays for years, and a new Australian Bureau of Statistics (ABS) report sheds light on the reasons why.
The Impact of the HomeBuilder Scheme and Low Interest Rates
One key driver has been the surge in loan approvals and build commencements during the 2020-21 financial year, spurred by low interest rates and the federal government’s HomeBuilder stimulus program.
“In response to the Covid pandemic, the HomeBuilder scheme gave eligible owner-occupiers $25,000 to build or renovate,” CoreLogic’s Eliza Owen told SBS.
Ms. Owen explained that the scheme’s unlimited grant design, combined with a deadline, caused excessive demand, compressing new home purchase decisions into a short timeframe.
“It created excessive demand because it concentrated more new home purchasing decisions within the period of the scheme,” she said.
“That only added to demand pressures at a time when the inputs to the supply of housing were constrained.”
Labour and Material Shortages During the Building Boom
The surge in building commencements caused significant bottlenecks in new home construction, especially in regional Victoria as people sought to move away from cities during the pandemic.
Global supply chain disruptions and labour shortages compounded the problem, pushing construction timelines further out.
The ABS report shows that dwellings under construction peaked in 2023 at 104,315 dwellings — far above the previous peak of 70,306 in June 2018.
“The demand for housing far outstripped the amount of material and labour that’s been available to build it,” Ms. Owen noted.
“Since the onset of the pandemic, construction costs for a detached house have risen over 30 percent.”
Builder Insolvencies and the Fixed-Price Contract Fallout
A significant driver of higher costs and longer delays has been the high attrition rate among builders. Fixed-price contracts became a challenge as builders struggled to absorb sharp post-contract cost increases, often resulting in insolvencies.
This exacerbated the building bottleneck, leaving many homes unfinished and suppliers unpaid.
Construction Costs: Slowing But Still Rising
While the pace of rising construction costs is slowing, they remain elevated.
“Some material costs have come down a little bit, and the pace of increase in materials is slowing. But overall, the cost of construction is still rising,” Ms. Owen said.
As fewer new dwelling approvals enter the pipeline, capacity issues may ease over time.
“All of those labourers and materials that were so stretched across these different projects — the volume starts to come down, and that eases some of the capacity issues,” Ms. Owen explained.
