Property prices are tipped to increase further as builders are hit with the biggest surge in construction costs in 16 years.

Nationally building costs increased by 7.3% last year, the highest annual increase since 2005. CoreLogic warns that this could result in home prices and renovation costs continuing to rise in 2022.

Head of research Tim Lawless expects price growth to remain above average in the coming months, as a result of continued supply chain disruptions and above-average demand for new homes.

Demand for housing increased substantially during the pandemic as a result of the Federal Governments’ HomeBuilder grant with a significant amount of work in the pipeline.

“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,” Lawless says.

The biggest cost increases were in Western Australia and South Australia (7.9 %), followed by Queensland (7.3%), Victoria (7.1%) and NSW (7%).