ABS data: New build costs surge, but data points to rate cut

Rising housing construction costs in the past financial year are no longer expected to stop the Reserve Bank cutting interest rates.

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The cost of Australia’s average new home build has surged more than $22,500 to $492,410 in the past financial year.

But the rising cost is no longer expected to impact Reserve Bank decisions on interest rates with a key building industry group who forecast July’s shock hold now flagging there will be a cut to home loan costs next week.

The Housing Industry Association analysed Australian Bureau of Statistics data released on Friday and found material costs rose at less than the consumer price index in the past year.

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Instead, they believe the increasing cost of new builds in housing approvals data is being caused by seven-star energy efficiency and accessibility minimum standards added to Victoria and South Australia in 2024, and flow on effects from the same code added to NSW and Queensland a year earlier.

Much of the rest of the increase is being linked to homebuyers looking to build homes that are bigger, better quality, or both.

HIA economist Maurice Tapang said given these factors, even with a 4.8 per cent increase in home building approval costs in the past year the way should now be clear for an August interest rate cut.

HIA economist Maurice Tapang is tipping a rate cut in August.

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“I don’t think they should be delaying any cuts to the cash rate in regards to people taking on larger or better quality homes, I don’t think that will be their main concern,” Mr Tapang said.

The Association was one of the few to predict the RBA’s July decision to hold rates, but now believes the odds are they will cut in August, and again in November, as they follow what appears to be a more quarterly-linked schedule following cuts in February and May.

While most building costs did not increase in the past financial year, there were some outliers. Copper pipes and fittings jumped by 13.9 per cent, electrical cable and conduit recorded an 8.3 per cent uptick, while fibrous cement products increased 7.5 per cent, ahead of ready-mixed concrete’s 5.7 per cent gain.

The ABS building approvals data showed NSW was home to the biggest increase in the cost of the average new house approval in the past financial year, rising more than $38,700 to almost $550,000.

The cost of building new houses has surged in every mainland Aussie state.

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It eclipsed Western Australia, where the typical house build price rose $26,786 to hit $443,210.

South Australia remains the most affordable mainland state to build a house in, despite a $25,400 increase bringing its typical house cost to $403,348.

Queensland and Victoria both had similar increases, with the former rising $20,940 to $500,160 in the past year, and the latter up just under $20,000 to $510,000.

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