Border controls: pandemic limitations on movement of goods and people have pushed building industry inflation higher in Queensland and WA.

Building costs rise fastest in states with closed borders

Michael Bleby|Dec 15, 2021

Construction costs are rising fastest in Brisbane and Perth, the two capitals least affected by lockdowns but with the toughest border restrictions, RLB’s latest assessment of tender price rises shows.

With inflation forecast to surge 9.6 per cent and 10.5 per cent in Brisbane and Gold Coast respectively this calendar year, the two cities are also set for further construction cost gains next year with an estimated 5 per cent increase, the surveying firm’s International Report – Fourth Quarter 2021.

However, while Sydney and Melbourne have kept price escalation under control even as they faced lockdowns, analysis of recent increases in tender prices for Sydney projects has prompted RLB to predict a country-leading 5.6 per cent increase for the harbour city next year, up from a 2 per cent forecast six months ago.

“There does appear to be growing pressure and perhaps further impacts to come,” the consultancy said.

“This has been most evident in Sydney where the analysis of current tender prices received in early December has resulted in revisions to the published 2021 and 2022 tender price index uplifts.”

Similar pressures are not yet evident in Melbourne, where RLB’s forecast of 3 per cent growth in tender prices next year is only slightly above the last forecast of 2.5 per cent.

Rather than measuring the costs of individual items and services, the report considers cost inflation of tenders submitted by contractors.

But while inflation may be return to the two largest cities, the report reinforces the idea that lockdown itself did not harm the industry – which kept active in most jurisdictions – but that the closure of borders impeded the flow of materials and labour.

The Queensland and WA cost-escalation estimates were “surprising” as both states had limited lockdowns, “but both introduced stringent border closures when compared to the rest of the country,” RLB says in the report.

Perth faces a 4.5 per cent increase next year, reflecting an acceleration from the 3 per cent growth in RLB’s last published forecasts six months ago.

Queensland opened its borders to NSW and Victoria this week. WA said this week it would open its borders up on February 5 under the cautious stance it has taken to protect its health system while boosting its vaccination rate.

The biggest price rises this calendar year have come in concrete, steel, timber and PVC-based products used in hydraulic and electrical trades, the RLB report says. Raw material prices for metals such as copper and iron ore reached record highs.

The increases had prompted some contractors to expose their customers directly to rises in input costs, by making supply rates a condition of tender pricing, subject to a price adjustment if rates increased, the report says.

Industry surveys show rates of price growth are hovering close to record highs.

Rising costs will increase the pressure on smaller contractors, many of whom are already facing cash-flow pressures. Industry payment times have already blown out, credit reporting agency CreditorWatch said earlier this week.