The Amato Property Blog

Construction Costs Surge: What It Means for the Newcastle and Lake Macquarie Property Market

Australia’s ambitious target of building 1.2 million new homes over the next five years is now in jeopardy as residential construction costs continue to rise. According to CoreLogic’s Cordell Construction Cost Index (CCCI), construction costs grew by 1% in the September 2024 quarter. While this aligns with pre-COVID averages, it represents a significant increase compared to the previous quarter’s rise of 0.5%.

This surge is adding to the pressure on the government’s housing goals and creating ripple effects across property markets, including Newcastle and Lake Macquarie.

Impact on Newcastle & Lake Macqauarie Region

The Newcastle and Lake Macquarie regions, already experiencing significant population growth and high demand for housing, are not immune to these rising costs. With construction costs rising across the board, the feasibility of new developments in these areas may be challenged.

For prospective buyers in Newcastle and Lake Macquarie, this could mean higher prices for new builds, extended construction timelines, and potentially fewer new homes entering the market in the near future.

Rising Costs and the 1.2 Million Homes Target.  The Albanese government’s target of constructing 1.2 million well-located homes by 2029 is under immense pressure.

CoreLogic’s economist Kaytlin Ezzy highlights that achieving this goal is becoming increasingly difficult due to rising construction costs. Over the past year, only 176,000 dwellings were completed, far short of the 240,000 annual target needed to meet the five-year goal.

While there are still 250,000 homes in the pipeline nationwide, the approval of new projects is sluggish, and once the current backlog clears, the shortfall could grow.

This slowdown could particularly affect regions like Newcastle and Lake Macquarie, which rely on steady development to meet housing demand.

State-by-State Breakdown. While construction costs have increased nationwide, Queensland saw the largest rise at 1.1%, followed closely by New South Wales and Western Australia with 1%. Victoria and South Australia had more modest increases of 0.8%.

For homebuyers in Newcastle and Lake Macquarie, this increase in construction costs for labor and materials is likely to push property prices higher, further straining affordability in these desirable regions. Ad

ditionally, as these costs are passed on to buyers, it may affect the timelines and budgets for home construction projects.

Challenges for Builders and Property Developers. Builders in Newcastle and Lake Macquarie, like their counterparts across Australia, are facing the double challenge of rising construction costs and squeezed profit margins.

Since the onset of the pandemic, overall construction costs have surged by 29.5%, making some projects financially unviable. This strain on builders could result in delayed projects or scaled-back developments in the region.

The challenges may deter some developers from launching new projects, further reducing the supply of new homes in Newcastle and Lake Macquarie.

Signs of Hope in New Home Sales. Despite these challenges, there are reasons for cautious optimism. According to the Housing Industry Association (HIA), new home sales have remained stable, with an 8.6% increase over the past 12 months compared to the previous year.

In regions like Newcastle and Lake Macquarie, strong population growth, low unemployment, and rising wages are expected to sustain demand for new homes. This demand could help keep the property market resilient, despite rising construction costs.

What This Means for Property Buyers in Newcastle and Lake Macquarie

For prospective buyers in the Newcastle and Lake Macquarie regions, these trends suggest that acting sooner rather than later might be wise. As construction costs rise and developers face increasing challenges, the availability of new homes may tighten, driving prices upward.

Additionally, with demand remaining high, particularly in desirable areas near the coast or with lake views, the pressure on the housing market is unlikely to ease in the short term.

Final Thoughts

While the rising construction costs pose significant challenges to Australia’s housing goals, demand in Newcastle and Lake Macquarie remains robust. Buyers should be prepared for the possibility of higher costs and act strategically to secure properties before prices climb further.

With strong economic fundamentals supporting the region’s housing market, Newcastle and Lake Macquarie remain attractive for both homebuyers and investors alike. If you’re considering purchasing property in these regions, it’s more important than ever to work with experienced local agents who can help you navigate these changes effectively.

If you’re looking to buy or invest in Newcastle or Lake Macquarie, don’t hesitate to reach out. Our team is here to guide you through the complexities of the current market, ensuring you make informed decisions. 

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Amato Property, together with their directors, officers, employees and agents have used their best endeavours to ensure the information passed on in this document is accurate. However, you must make your own enquiries in relation to the information contained in this document and seek advice from your financial advisor, broker or accountant to ascertain its application to your circumstances.