This figure shows you which states will boom

Construction costs are rising quickly… but not everywhere.

Take a look at this table here and tell me what you see:

This is a table of total construction costs in Australia. It’s looking at how much more it costs to build a dwelling this year compared to last year. This comes from the property analyst Michael Matusik – one of the best in the game.

So what does it tell you? Well it tells you construction costs are booming in New South Wales, and Queensland.

So what does it mean?

Well, on the face of it, it means that tradies are getting more expensive. Or materials. Or both.

It just costs a lot more to build a dwelling in each of these states.

But want to know what I see?

I see price pressures building in the pipe-line.

In many ways it’s the flow of new properties that regulates price growth.

If there are a bunch of cheap new properties coming on to the market, then that will start to take the pressure off prices. On the other hand, if those new houses are more expensive, that will add additional pressure to prices.

And so what we’ve got in Queensland and NSW is strong growth in the price of new properties.

And remember, this is before we take into account any increases in the price of land, which we know have been occurring.

But just on the build costs alone, we’re looking at around a 5% increase in prices for new properties.

How that flows through to the overall market is difficult to determine, but since, other things being equal, new houses are now 5% more expensive than they used to be, new houses are really going to struggle to bring the market down.

And so I’m looking at that and thinking, man, prices in Sydney are just going to keep heading north. No doubt about it.

And I’m looking at Brisbane and thinking, there’s a few issues in Brisbane right now. The apartment over-supply is still something to watch.

BUT, if the price of new homes is growing this quickly, prices are not going to be falling any time soon.

This is going to keep a solid floor under prices, and if anything, put even more upward pressure on prices.

So if you have a position in the Brisbane market, this is good news.

The other interesting thing with these results is the very modest growth in construction costs in Victoria. Given all the building that’s been happening, 1.2% is fairly small.

But you’re not going to notice it. That main story in Melbourne is population growth. The population grew by close to 130,000 people last year. No realistic amount of supply is going to put a dent in that demand.

So for the big three, this points to further price gains.

Note the fall in costs in Perth. The correction still has some way to run over there.

And then there’s Tasmania‚Ķ

What is going on over in Tasmania?

Are you seeing construction costs pick up?

Spiro Kladis
Managing Director, Cashflow Capital

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Leave A Reply (4 comments so far)


  1. Henry Dunn
    4 weeks ago

    Hi Spiro thank you for the information I read it avidly. What can you tell me of the western suburbs of Melbourne and Geelong, I was up there a week ago, Geelong, through to Portarlington, Indented Head, St. Leonards, Queenscliff, Point Lonsdale and saw a lot of building and homes mushrooming every where even Ocean Grove is picking up slack. It looks very promising, I would like to hear your thoughts.


    • admin
      4 weeks ago

      Hi Henry,
      Thank you for your post.
      We have the following concerns about the two locations, however we do feel the Geelong region has a better growth story than the Western Suburbs of Melbourne.
      West:
      Over the last 10 years, since the urban growth boundary shift there has been an exponential period of growth due to the rezoning of land from farming to residential.
      The review of the UGB responded to the directions of Melbourne @ 5 million to accommodate an additional 600,000 new dwellings in Melbourne, with 284,000 of these needing to be located in the growth areas. Most of this future growth was designated to be in the north and west of Melbourne. The problem with the Melb West locations is simply over supply. How are you going to generate capital growth in an area where literally every house is new and they are all for sale or recently been sold? While long term it will be a decent investment, can you afford to wait 25 years for your capital growth? I have attached some Residex predicated growth reports for the Western suburbs to demonstrate the predicated capital growth.

      cheers

      Spiro


  2. Anna
    4 weeks ago

    Hi Spiro,
    What are your thoughts about the Parramatta to West Ryde area in Sydney?
    There is plenty of new duplexes , and townhouses being put on older homes blocks of land, and a lot of unit construction planned for Telopea/ Rydalmere/ and ? Ermington.
    Do you think this increase supply is going to dampen the capital growths that has been occurring over the last couple of years? Do you think that the new Parramatta to Carlingford light rail will influence prices in this area?
    I value your knowledge and thoughts and thanks so much for telling us about th increase in construction costs.


  3. steve
    3 days ago

    Hello there!! Thanks for this amazing information.

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