Building, renovating costs likely to rise

And although they eased some towards Christmas, experts fear the final quarter reprieve might be short-lived as supply chain disruptions persist into 2022.

It's an assessment that aligns with Housing Industry Association index figures showing construction performance dropped 11 points and into contraction territory over December and January, cutting short a recovery in November.

Peter Burn, chief policy advisor at Ai Group who produces that data, blames the downturn on business and household confidence volatility associated with the spread of Omicron but also on disruptions to labour and material supplies.

CoreLogic's Cordell Construction Cost Index reveals that a 3.8 per cent surge in the national cost of residential construction in the three months to September, softened to 1.1 per cent for Q4.

That brought the quarterly trend back in line with the five-year average and below the CPI of 1.3 per cent for the same period.

CoreLogic research director Tim Lawless says the smaller rise over the quarter might reflect some rebalancing. However, he expects growth to remain above average in the coming three months.

"There is a significant amount of residential construction work in the pipeline that has been approved but not yet completed," Mr Lawless said.

"With some materials such as timber and metal products reportedly remaining in short supply, there is the possibility some residential projects will be delayed or run over budget."

The expectation new homes and renovations will be more expensive to complete follows a 22.4 per cent rise in housing values nationally over the 12 months to January.

In other words, steeper costs are likely to compound affordability challenges already at play across the market.

CoreLogic insurance expert Matthew Walker says they will affect existing homeowners and investors too.

"In these times of rapidly rising home and construction costs, under insurance can quickly become a real threat to what is a most valuable asset," he said.

"It's important home owners keep track of their sum insured and annually check it is sufficient should the worst occur by using their insurer's rebuild calculator or giving them a call."

The Cordell report found NSW costs increased one per cent in the December quarter, down from 3.8 per cent in the previous three months. Its annual growth rate is now seven per cent.

Victoria recorded the highest Q4 increase of five main states at 1.2 per cent but was still down on the 3.5 per cent recorded in Q3. Its annual construction cost growth rate is 7.1 per cent.

Queensland's costs rose 1.1 per cent, down from 4.3 per cent and its annual growth rate is 7.3 per cent.

Western Australia and South Australia saw Q4 increases of 1.1 per cent, taking their annual growth to 7.9 per cent.

The data measures the rate of change of residential construction costs for freestanding and semi-detached single and two-storey homes.

Australian Associated Press