Building costs hit record levels in three states amid housing push

A surge in new housing approvals, as well as the cost of those homes in three states, has put further doubt on Australia getting any more rate cuts.

Australia has just posted its biggest new home approvals figures for a month since 2022, but it came at a cost with three states notching record average house build costs.

The increase in activity was heavily buoyed by a rise in new apartment approvals, however isn’t enough to get the nation back on track with its 1.2 million new homes by 2029 target.

But building industry experts have warned that with housing construction costs a key factor in Reserve Bank decisions around inflation, increasing building activity and cost could mean there will be no more interest rate cuts in the current market cycle.

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Australian Bureau of Statistics data released this week shows the nation green lit 18,352 new homes in September, thousands more than August this year, and the highest figure since August, 2022.

But the uptick came at a price, with record new build costs recorded in NSW, where the average new house build approval was slated to cost $576,672, Queensland, at $536,376, and South Australia, $429,751.

Western Australia notched its third highest average house build cost for a month at $464,605, behind two higher figures both set this year.

Developing Queensland – New home construction site with contractor in foreground.

Victoria’s $523,535 was its fourth biggest sum on record, with higher average build costs spread across the past two years.

Housing Industry Association senior economist Tom Devitt said the rise in approvals was good news and that the housing industries major variables had finally begun to line up.

Mr Devitt added that Victoria and NSW in particular seemed to be responding after lagging most of the rest of the nation in a new housing rebound.

Average build cost by state for September:

NSW — $576,672 (record)

Victoria — $523,535

Queensland — $536,376 (record)

Western Australia — $464,605

South Australia —$429,751 (record)

Tasmania — $490,952

“And interest rates seem to have helped in a big way, as have some good government announcements,” he said.

“But after last week’s disappointing inflation figures, it will be a hold (on Tuesday) and they probably wait for a few more months of data.”

The economist added that housing costs weighed particularly heavily on the Reserve Bank’s decisions, so increases in their component of the consumer price index as well as rental cost hikes did not favour further interest rate cuts.

“It’s entirely possible that we have seen the last cut in this cycle,” Mr Devitt said.

He said that increased building approval values likely reflected a combination of tradies wages and homebuyers seeking larger, more impressive homes — with material costs relatively flat.

“But we are still well short of that target,” Mr Devitt said.

HIA senior economist Tom Devitt has warned there is a chance we’ve seen our last rate cut for the current cycle as housing data surges.

“The forecasts we have at the moment, we are expecting that detached housing will get close to 600,000 over five years. At 120,000 a year, we think it will head back to those numbers.

“But the short fall is mostly in the medium and high-density that needs to do the other half.”

Oxford Economics property and building forecasting head Timothy Hibbert said the increase in inflation and the housing component of that had “dialled back the probability of a rate cut on Tuesday”.

“The average value housing approved us up about 6.5 per cent nationally,” Mr Hibbert noted.

He noted this could also reflect fewer first-home buyers active in the new housing market and a rise in demand from investors.

However, Mr Hibbert said with September usually a busy month and a substantial jump in apartment approvals above four stories to their highest level since 2022, it was unlikely the increase would be sustained — making reaching the National Housing Accord goal unlikely.

He said the states most likely to get close to their share of the 1.2 million homes were Western Australia, South Australia and Victoria — with NSW currently in the worst position.

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