Why construction costs are still high when property values are falling: Michael Matusik

Property values have taken a well-documented slide lately, yet construction costs are still relatively high.

Will they ever head south, the way some sales contracts have?

Demand for domestic construction has cooled a bit in the past few years, but excess workers have been absorbed by stellar projects in commercial construction and mining.

As a result, we haven’t really seen widespread discounting of construction labour, and we certainly haven’t seen discounted building materials – although fixtures and fittings imported from China are more affordable than ever.

Depending on your level of construction expertise, you may have heard of a costs guide called Rawlinsons. It’s an annual bible with quarterly updates and gives an accurate reflection of what’s going on with the costs of all things construction.

You can get bogged down in the specifics – if you want to know how much it’ll cost to lay a 22mm terrazzo floor in Perth, the Rawlinsons guide will tell you. Need to price a partial demolition in Melbourne? Rawlinsons knows the ins and outs of that, too. Building a bank in Adelaide? A pub in Darwin? Rawlinsons will tell you what to budget.

The 2012 guide shows that after big jumps in the early 2000s, construction costs have either plateaued or increased very slightly in the past three years – they haven’t gone backwards.

So how much does it cost to build a house, right now? Or an apartment?

Let’s start with a small, basic house – a project home, if you will. A stock standard brick veneer home of 90-110 square metres will set you back anywhere from $825 per square metre in Adelaide, or $1,280 per square metre in Hobart. In Brisbane and Sydney you can expect costs of around $1,050, while Melbourne is about $1,100 per square metre.

A bit further up the chain, a full brick prestige home between 150-350 square metres is again cheapest to build in Adelaide, with costs ranging from $2,080 per square metre. Brisbane is the most expensive capital in which to build to prestige standard, up to $3,240 per square metre.

Interestingly, the pricing guide for pre-fabricated housing of a medium finish is all around the $1,200 per square metre mark – more than the most expensive project home but considerably cheaper than a similar prestige home. There’s certainly a place in the market for pre-fab housing; consistency of costs is another attraction.

Moving into apartments (so to speak,) and the costs are higher than for pre-fab housing, but generally lower than for a traditional house.

The cost of a medium-finish one- or two-bedroom apartment with no balcony or lift starts at $1,580 per square metre in Adelaide and Brisbane, ranging all the way up to $2,090 in Hobart. Perth’s costs are hovering around the $1,700 mark, Sydney around $1,800 and Melbourne up around $1,900. Then you’ve got to add up to $780 per square metre for a balcony.

It all adds up, but remember – most apartments are considerably smaller per square metre than your average house, so they’re cheaper overall.

Townhouses of a medium standard finish are about the same or marginally cheaper to build than apartments, starting from $1,365 in Adelaide and ranging up to $2,150 in Hobart. Brisbane’s rate is around the $1,600 mark, Perth is around $1,700 while Sydney and Melbourne are both about $1,750.

Rawlinsons’ last quarterly update in July recommended adding an additional 1% on top of all current cost guides – further evidence that construction, just like property, is making a small step back into the black. Another tiny win for confidence!

Michael Matusik is the founder of Matusik Property Insights, which has helped over 550 new residential projects come to fruition.  Read Michael's blogor follow him on Twitter or connect via LinkedIn.