Housing approvals are rising but foreclosures are not – which Altus warns is a sign of a “bubble” situation at play.
One of Australia’s leading construction consultancy firms has warned of a ‘market bubble’ as six-figure cost cuts hit projects and copper prices rise at four times the rate of inflation.
This warning comes as housing approvals and housing starts have taken off post-Covid, but completions have failed to follow – creating a growing gap between what is planned and what is actually delivered.
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Altus Group’s view on rising construction costs – material price summary. Source: Altus Group.
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Altus Group’s quarterly report notes “growing evidence that some concessions are being pursued to increase land prices, rather than to improve supply – a key sign of a market bubble”.
Altus warns the failure of service subcontractors poses a greater risk than the failure of main contractors because subcontractors provide guarantees and are often exposed to multiple projects at once.
The report reveals 1,894 construction shortfalls in 12 months – the highest of any sector – as rising property costs make it harder to build.
To meet the national target of 1.2 million new homes within five years, completions must average 60,000 dwellings per quarter, with current trends falling short.
According to Niall McSweeney, Altus Group’s Head of Development Advisory, global demand pressures and on-site delivery risk are hitting hard, with major projects seeing cost increases often in the six figures.
Copper prices exceeded US$13,000 per ton, driven by increased demand for electrical installations, data centers and renewable energy. Unlike wood or steel, copper can’t be replaced as soon as construction begins – it’s embedded in late-stage jobs like electrical, plumbing and mechanical work, trapping engineers in rising costs.
S&P Global predicts that copper demand will increase from 28 million tons in 2024 to 42 million tons in 2040, with an annual shortfall that could reach 10 million tons — about 25 percent below projected demand. This is as it is expected that the price of electric cables will increase this year.
Niall McSweeney, Altus Group Head of APAC Development Consulting.
Building permits are tracked – although not all intend to build. Source: Altus Group.
While copper dominates the crisis, concrete continues to rise and Chinese timber imports at half the price of domestic production are forcing Australian millers to retreat. The bright spot was that diesel fell to pre-pandemic levels, providing relief for transport.
According to Altus, “public investment is attracting a growing share of the national construction force, competing directly with private sector projects for the same jobs and commercial services”.
It also found Brisbane has overtaken Sydney as Australia’s most expensive city to build, with Altus revising its forecast to 7.75% cost growth by 2027 – almost double Sydney’s 4.25% and more than double Melbourne’s 3.75%.
Queensland’s capital city is facing a confluence of pressures: a $3.8 billion Olympic stadium, major transmission and renewable energy projects, chronic labor shortages, and accelerating housing competing for the same resources at an impossible time.
“A lot of big projects are coming together in the same small window. The key challenge is time,” said Mr McSweeney.
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Producer price index – output, year in black. Source: Altus Group
The rate of 25 points of the Central Bank of the latest increased to 3.85 percent, and the increase indicated, includes the pressure by hitting the funds of the construction and the operation of the project.
And there is pressure on workers, with the Price Index rising by 3.4 percent during the year, as major unions aim for a four percent wage increase, which translates directly into higher project costs in construction.
Growth rates are expected to remain “above pre-2021 levels, with meaningful relief unlikely before 2028 given pressure on fixed, labor and regulatory costs” according to the report.
“Two years ago, inflation was classified as an import problem,” the report said. “That definition no longer applies. Inflation in Australia is now very domestic.”
Altus Group’s quarterly construction materials outlook is based on market research with manufacturers and suppliers, combined with analysis from the Australian Bureau of Statistics, the Australian Institute of Quantity Surveyors, and proprietary cost data.
