CoreLogic’s Cordell Housing Index Price (CHIP) reveals it is the highest since Cordell Building Indices began in 2012.

The strong quarterly increase has pushed the annual growth rate to 4.5%.

This is a big jump from 3.3% in the 12 months to March and the highest annual increase since the first quarter of 2019 (4.7%) when prices were already in a slowdown phase.

CoreLogic chief property economist, Kelvin Davidson, says the acceleration in house-building cost inflation is just another piece of ammunition for the Reserve Bank to hike interest rates when the current lockdown is over as it tries to “get ahead of the curve” on keeping general price rises controlled.

The construction sector has been running at full capacity and pressures have been emerging for several months.

Davidson says there have been reports of labour shortages in housing construction, as well as stress on supply chains and availability of materials.

And these pressures are now starting to flow through more clearly to the prices that builders are having to charge their clients.

“Where some suppliers had previously absorbed cost increases or substituted materials where possible, costs are now being passed on to the consumer.”

The number of new dwelling consents remains high, boosted by smaller dwellings such as townhouses, suggesting there’s unlikely to be much let-up in cost pressures in the industry for some time.

In addition, work on consented alterations and additions is also running at the highest levels in more than a decade, let alone any projects being done that don’t require consent.

Davidson anticipates the CHIP index for the third quarter, and beyond, will show more price pressures, with the annual growth rate continuing to rise.

The CHIP report measures the rate of change of construction costs within the residential market and covers freestanding and semi-detached single and two-storey homes.

“It’s difficult to put precise figures on how fast prices might rise, but what is clear is that anybody wanting to build a new house will be facing higher costs in future – which in turn would eventually start to crimp demand and therefore remove some of these pressures.”