New warning as construction prices rise from copper peak of 16.5% – realestate.com.au

One of Australia’s top construction consultancies has warned of a “market bubble” as six-figure costs hit projects and copper prices rise four times faster than inflation.

The warning comes as approvals and housing starts have been lifted following the Covid-19 crisis, but completions have not been followed, leaving a widening gap between what is planned and what is actually delivered.

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Altus Group’s prospects for construction cost escalation – snapshot of material prices. Source: Altus group.

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Altus Group’s quarterly report notes “increasing evidence that some approvals are being sought to increase land values, rather than drive delivery – a key sign of a market bubble.”

Altus warns that the failure of subcontractors for services poses greater risks than the collapse of the main contractor, because subcontractors provide guarantees and are often exposed in multiple projects at the same time.

The report reveals 1,894 bankruptcies in the construction sector in 12 months – the highest of any sector – as rising material costs make it increasingly difficult to build.

To achieve the national target of 1.2 million new homes in five years, an average of 60,000 homes must be delivered per quarter, significantly lagging current trends.

According to Niall McSweeney, Head of Development Advisory APAC at Altus Group, copper is being hit hard by global demand pressures and the risk of on-site delivery, with cost escalation on larger jobs often measuring in six figures.

Copper prices have surpassed $13,000 per tonne, driven by rising demand from electrification, data centers and renewable energy. Unlike wood or steel, copper cannot be replaced once construction begins; it is embedded in advanced works such as electrical, plumbing and mechanical work, trapping developers with rising costs.

S&P Global forecasts that copper demand will rise from 28 million tons in 2024 to 42 million tons in 2040, with annual shortages potentially reaching 10 million tons – roughly 25 percent less than expected needs. This is because more price increases for electrical cables are expected this year.

Niall McSweeney, head of development consultancy APAC at Altus Group.

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More and more building permits are being issued, even though not everyone plans to build. Source: Altus group.

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While copper dominates the crisis, concrete continues to rise and Chinese timber imports at half the price of the domestic product are forcing Australian factories to scale back. One bright spot was the drop in diesel oil to pre-pandemic levels, which provided modest logistical relief.

According to Altus, “public investments are absorbing a growing share of national construction capacity and competing directly with private sector projects for the same labor and service sectors.”

It also found that Brisbane has overtaken Sydney as Australia’s most expensive city to build, with Altus revising its forecast upwards to a 7.75 per cent cost escalation to 2027 – almost double Sydney’s 4.25 per cent and more than double Melbourne’s 3.75 per cent.

Queensland’s capital is facing a confluence of pressures: the $3.8 billion Olympic stadium, major transmission and renewable energy projects, chronic labor shortages and increasing housing construction all competing for identical resources on an impossible timeline.

“Multiple megaprojects are coming together in the same narrow window. The main challenge is timing,” McSweeney said.

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Producer price index – production, annually in black. Source: Altus group

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The Reserve Bank’s recent 25 basis point interest rate hike to 3.85 percent, with further increases signaled, is adding to pressure by undermining construction financing and project viability.

There is also labor pressure: the wage price index increased by 3.4 percent over the year, while major unions are seeking a 4 percent wage increase, which directly translates into higher project costs in construction.

Escalation rates are expected to remain “well above pre-2021 levels, with meaningful relief before 2028 unlikely given entrenched pressures on material, labor and regulatory costs,” the report said.

“Over the past two years, inflation has been portrayed as an imported problem,” the report said. “That statement no longer holds true. Australia’s inflation is now largely homegrown.”

Altus Group’s quarterly building materials forecasts are based on market research from manufacturers and suppliers, combined with analysis from the Australian Bureau of Statistics, the Australian Institute of Quantum Surveyors and proprietary cost data.