Housing inflation in NSW is continuing to increase, with building industry leaders fearing it could “threaten the viability of new housing projects by pushing construction costs up even higher”.
On Wednesday, the Australian Bureau of Statistics (ABS) released its consumer price index, which remained unchanged at 3.8 per cent in January.
However, inflation was slightly higher than anticipated, signalling another potential rate hike from the RBA.
Master Builders NSW executive director Matthew Pollock said another rate hike could be dire for the building industry.
“We’re already seeing too many projects fail at concept stage because high costs make
building these developments unfeasible,” he said.
Mr Pollock said while the construction industry was “not at a particularly high point” in terms of construction activity, he said prices continued to rise.
“This suggests that capacity constraints, particularly in the labour market, are putting a handbrake on output growth,” he said.
He argued that rising costs meant the NSW and federal governments’ target of building 377,00 new homes by 2029 was growing further out of reach.
“The prospect of NSW achieving the housing target set for it by the federal government
becomes ever more remote the longer that the high level of inflation persists,” Mr Pollock said.
“It’s also worrying that many economists, the Reserve Bank and other commentators are
now placing at least some of the blame for sticky inflation on high government spending.”
He said the ABS inflation data reinforced the “need to boost construction industry productivity through building capacity in the construction workforce and supply chains to put downward pressure on costs”.
“High inflation is now the biggest factor in housing affordability,” he said.
“Housing inflation is tracking at double the pace of wages growth for most households.”
This put additional pressure on a builder’s profit margins, Mr Pollock said.,
The mounting pressure comes after the construction industry reported “the highest rate of insolvencies compared to other industries over the past two years”.
“When the construction industry gets a cold, the broader economy can come down with
pneumonia,” Mr Pollock said.
