Residential construction costs in Australia have continued to rise in recent quarters, even outpacing the growth in the consumer price index (CPI) in June.

CoreLogic's Cordell Housing Index Price (CHIP) results showed construction costs were 1.4% higher over the June quarter.

This was the largest quarterly increase since 2014. During the same quarter, CPI registered an increase of 0.8%.

Two factors were at play during the period: the increasing demand and the shortage of construction materials such as timber, PVC piping, and fittings.

Dwelling approvals still high despite recent dips

While monthly dwelling approvals have moderated in June and May, the surge early in the year was able to keep the number afloat.

The pipeline of approvals peaked in March, following the significant increases of 19.1% in February and 16% in March.

Over the 2020-21 financial year, the overall number of approvals was 27.3% higher than the previous year.

Private sector approvals increased by 42.8% during the period.

CoreLogic research director Tim Lawless said this surge in dwelling approvals over the past 12 months laid the foundation for an extended period of heightened construction activity across Australia.

"The substantial pipeline of residential construction work is likely to keep both building materials and trades in short supply for an extended period of time," Mr Lawless said.

"I think we can expect housing construction costs to rise more significantly over the coming year as supply chains grapple with ongoing shortages.

“Higher construction costs will inevitably flow through to higher costs for new homes and renovations.”

Construction costs rise across the board

Construction-related expenses increased across all five states monitored by CHIP, with South Australia striking the highest quarterly growth at 1.5%.

NSW recorded a substantial change in the period with its 1.3%.

This was the first time construction costs in the state have grown by more than 1% since 2018.

WA also reported its sharpest uptick in construction costs since 2015 at 1.4%.

On an annual basis, construction costs in Queensland clocked the highest gains at 4.7%.