Queensland's construction costs had the highest quarterly rise nationwide, according to a new report.
The state's latest construction data increased by 5.8 per cent over the September quarter, well above its June rise of 2.3 per cent.
The figures were reported by property analyst group CoreLogic's Cordell Construction Cost Index, which tracks material and labour costs.
The report found construction costs over the September quarter were the largest increase on record nationally, excluding the September 2000 quarter that was impacted by the GST.
Around the country, the construction cost quarterly rise was 3.3 per cent in Western Australia, 3.8 per cent in South Australia, 4 per cent in New South Wales, and 5.6 per cent in Victoria.
CoreLogic's Cordell Construction estimation manager John Bennett said the rising cost of raw materials, labour and fuel prices continued to add pressure on residential construction costs.
"A shortage of labour and more expensive overheads continue to have a bearing on the industry," he said.
"Its impact on the residential construction industry has not been lost with ongoing delays to completion times and a blow out to builders' holding costs during a period of market change.
"We're seeing a large increase in waste disposal fees across most states, and volatility in professional fees and services, with Victoria and Queensland showing the highest cost increases."
Building costs to continue to climb
CoreLogic research director Tim Lawless said the demand and pressure for construction materials and trades would continue.
"The backlog of construction approved during COVID is still being worked through and on top of that is the rebuild and repair work following this year's major weather events, with more forecast this month," he said.
"There is no quick solution for providing additional materials, and fuel costs remain elevated.
"All of these factors have an impact and are likely to push building costs higher for some time yet."
Mr Lawless said the federal government's home builder scheme launched at the height of the COVID pandemic in 2020 had contributed to an "unprecedented" amount of building approvals, which had increased construction demand.
"This is something that's been on going throughout COVID and isn't showing any signs of slowing down," he said.
"That's run headlong into these capacity constraints both from a materials perspective as well as a labour supply perspective.
"It does mean that for builders, margins are being eroded substantially.
"A lot of builders would be virtually profitless with such a high increase but it also means a lot of uncertainty for those people who are building a home."
While some building supply shortages were being resolved, other materials – like timber and steel – remained scarce.
"We're not seeing any signs of construction costs slowing down just yet," he said.
"It doesn't look like there's any light at the end of the tunnel for labour costs.
"We should expect that there are going to be further rises in construction costs before we see some sort of a ceiling or even construction costs coming down a little."
REIQ chief executive Antonia Mercorella was not surprised by the price hikes.
"It is incredibly difficult constructing something in this market, it is the hardest it has ever been," she said.
"It is just so difficult to find a builder at the moment, trades are also hard to find. It is near impossible and when you do, you are paying an absolute premium.
"Against that backdrop, you would expect we would be the most expensive state in Australia.
"It talks to the popularity of Queensland at the moment. We can't keep up in Queensland. Demand is just so strong and we are struggling to keep pace."
Ms Mercorella said REIQ data showed the "sunshine state" was still the number one destination for interstate migration, with demand for property and land as strong as ever.
'Very established builders going bust'
Ms Mercorella said she was "incredibly concerned" by the number of builders that had gone out of business as a result of mounting costs.
"Queensland has had the highest number of builders go bust. They were locked into fixed-prices contracts, and material costs rose," she said.
"So it is hard to make money in what we are calling a 'profitless construction boom'.
"We should all be incredibly concerned, when we see very established builders going bust.
"Most builders now won't do fixed-price contracts and banks only want to lend if it is a fixed price, so it's a very difficult situation."
The REIQ has advised people to get legal advice on any contracts as it is very different from buying an established property.
"It is very important to get extra security in the current landscape," she said.
