Pandemic rules send Perth construction costs surging above Sydney

Tiffany Emmett, a senior economist at consultants Turner & Townsend, which undertakes the annual survey, said Perth was more at risk of cost inflation spikes because of the smaller size of its market relative to the east coast, and because the construction industry competed with the mining sector and state infrastructure projects for labour.

“There hasn’t been the available skills coming in and there’s been a huge amount of activity in other states,” she said.

WA’s hard border came down on March 3, while the state has allowed unvaccinated Australians to return without having to quarantine since the start of June.

Adding to cost pressures in the Perth market – on top of building material shortages and supply chain bottlenecks being felt across the country and globally – has been a home building boom fuelled by generous federal and state incentives.

“It’s created a profitless boom for the residential sector,” Ms Emmett said.

WAToday reported in March that some home builders were demanding an extra $60,000 from customers to cover rising construction costs, including an 85 per cent increase in roof timber prices.

According to the latest Turner and Townsend survey, the average cost to build in Perth has increased to US$2822 ($4127) per sq m from $2142 in 2021, making it more expensive than Sydney at $2699, Melbourne ($2666), Brisbane ($2621) and Adelaide ($2454).

Last year, Perth ranked below Sydney, Melbourne and Brisbane, with only Adelaide cheaper.

“Rising material costs are postponing some [Perth] projects as recent tender returns reflect higher steel and concrete prices, challenging the feasibility of both current and projects at the design stage,” said Anooj Oodit, managing director ANZ and Asia for Turner & Townsend.

Construction costs increased across all capital city markets by 4-9 per cent as they battled rising material costs, shortages and bottlenecks.

Another key factor has been the cost of labour.

Australia ranked as the fourth most expensive region for construction labour globally, reaching an average of USD$75.5 per hour ($110). Only Switzerland, Austria and the US were more expensive. However, this was an improvement on the previous year, when Australia ranked second behind the US.

Construction cost pressures are expected to start to ease next year. Turner & Townsend predicts average construction cost inflation to fall from 8 per cent this year to 5.5 per cent next year – the lowest forecast rate for any global area.

Ms Emmett said central banks tightening monetary policy and raising interest rates would drive a slowdown and take pressure off supply chains.

“This should help to stabilise prices, and some may even fall,” she said.