Housing approvals are rising but completions are not – which Altus warns is a sign of a “bubble” situation in play.
One of Australia’s leading construction advisory firms has warned of a ‘market bubble’ as six-figure cost blowouts hit projects and copper prices surge four times the inflation rate.
The warning comes as housing approvals and commencements have lifted post-Covid, but completions have failed to follow – creating a widening gap between what’s planned and what’s actually being delivered.
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Altus Group’s outlook on construction cost escalation – material price snapshot. Source: Altus Group.
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Altus Group’s quarterly report flags “growing evidence that some approvals are being pursued to lift land values, rather than to progress delivery – a key sign of a market bubble”.
Altus warns services subcontractor failures pose greater risks than main contractor collapses because subcontractors provide warranties and are often exposed across multiple projects simultaneously.
The report reveals 1,894 construction insolvencies in 12 months – the highest of any sector – as soaring material costs make it increasingly tough to build.
To meet the national target of 1.2 million new homes over five years, completions need to average 60,000 dwellings each quarter, with current trends falling materially short.
According to Niall McSweeney, Altus Group’s Head of Development Advisory APAC, global demand pressure and on-site delivery risk are hitting copper hard, with larger jobs seeing cost escalation frequently measured in six figures.
Copper prices have surpassed US$13,000 per tonne, driven by surging demand from electrification, data centres and renewable energy. Unlike timber or steel, copper can’t be substituted once building starts – it’s embedded in late-stage trades like electrical, plumbing and mechanical work, trapping developers in escalating costs.
S&P Global forecasts copper demand will balloon from 28 million tonnes in 2024 to 42 million tonnes by 2040, with annual deficits potentially hitting 10 million tonnes – roughly 25 per cent below projected needs. This as more electrical cable price rises are expected this year.
Niall McSweeney, Altus Group’s Head of Development Advisory APAC.
Building approvals are tracking up – though not everyone intends to build. Source: Altus Group.
While copper dominates the crisis, concrete continues climbing and Chinese timber imports at half the price of domestic product are forcing Australian mills to scale back. A bright spot was diesel dropping to pre-pandemic levels, offering modest logistics relief.
According to Altus, “public investment is absorbing a growing share of national construction capacity, competing directly with private-sector projects for the same labour and services trades”.
It also found Brisbane has overtaken Sydney as Australia’s most expensive city to build, with Altus revising its forecast upward to 7.75 per cent cost escalation through 2027 – nearly double Sydney’s 4.25 per cent and more than double Melbourne’s 3.75 per cent.
The Queensland capital faces a convergence of pressures: the $3.8 billion Olympic stadium, major transmission and renewable energy projects, chronic labour shortages, and accelerating housing all competing for identical resources in an impossible timeline.
“Multiple megaprojects are converging in the same narrow window. The key challenge is timing,” Mr McSweeney said.
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Producer price index – output, annual in black. Source: Altus Group
The Reserve Bank’s recent 25 basis point rate rise to 3.85 per cent, with further increases signalled, compounds pressure by hitting construction financing and project viability.
As well there is labour pressure, with the Wage Price Index rising 3.4 per cent over the year, as major unions target 4 per cent pay increases, translating directly into higher project costs in construction.
Escalation rates are expected to remain “well above pre-2021 levels, with meaningful relief unlikely before 2028 given entrenched material, labour and regulatory cost pressures” according to the report.
“For the past two years, inflation has been framed as an imported problem,” the report states. “That explanation no longer holds. Inflation in Australia is now largely homegrown.”
The Altus Group quarterly construction materials outlook is based on market research with manufacturers and suppliers, combined with analysis from the Australian Bureau of Statistics, Australian Institute of Quantity Surveyors, and proprietary cost data.
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