Our Q4 2023 Economic and Residential Property Market Report found that there have been notable declines in approvals and commencements for medium and higher-density dwellings – both of which are key components to the 70/30 plan.
The primary hindrance of building progress is labour costs. While raw material costs (or inputs) for building construction in Melbourne have remained relatively stable over the past year (a modest 1.3% increase in the year to Q4 2023), it was in stark contrast to the 14.2% increase recorded in the year to Q4 2022. This was helped by lower costs of early-stage construction materials including steel, timber, and cement, but balanced by increasing costs of late-stage construction goods such as electrical equipment.
However, outputs of ‘other building construction’ (the market price of completed townhomes and apartments) which take into account labour, material, plan, and subcontractor margins has seen a significant escalation. In Q4 alone, the index figure surged by 5.7%, marking the highest quarter-on-quarter increase since Q3 2010.
Over the course of CY23, Victoria’s townhome and apartment output index rose by 8.3%, surpassing the increases seen in New South Wales (+5.5%), Queensland (+6.1%), and the national average (+6.3%). This notable rise, despite relatively stable input costs, strongly suggests a continued upward trend in labour costs associated with townhome and apartment construction in Victoria.
Furthermore, despite federal initiatives aimed at slowing the arrival of new migrants, January 2024 saw the highest level of long-term arrivals, as well as international student numbers largely recovering to 2019 levels are expected to exacerbate pressure on housing supply, which is already strained by low vacancy rates and a lack of significant planning reforms.
This article references findings from our Q4 2023 Economic and Residential Property Market Report.