The following news release was received from CoreLogic.
As pressures on residential construction supply chains and capacity ease, annual growth in construction costs has reduced to the lowest level in around seven years.
CoreLogic’s latest Cordell Construction Cost Index (CCCI) recorded a 0.8% rise in the fourth quarter of 2023. Despite a slight uptick in the pace of growth compared to each of the previous three quarters (0.4%-0.6%), it remained below the long-term average of 1.1%.
This brought the annual change to 2.4%, well below the 10-year average of 4.5%. This is the slowest annual rise since Q3 2016 (2.2%), and the second slowest since records began in Q4 2013.
CoreLogic Chief Property Economist Kelvin Davidson said the heat has really come out of New Zealand’s residential construction sector over the past quarter.
“The industry itself is simply facing less pressure on overall capacity, compared to its peak at the end of 2022, where over-stretched builders struggled to keep up with workloads for new houses and renovations."
“Records show material supply chains are easing further, with timber prices stabilising, and even some modest falls for metal products."
“On the flipside however, there have been some price rises on general hardware, mainly imported products. It’s also possible that H1 insulation standards are exerting some upwards pressure but it’s not possible to disentangle that effect from all the other influences.”
Looking ahead into 2024, Mr Davidson said the pace of construction cost growth could remain subdued.
“The surge in net migration may help to restrain the pace of construction sector wage growth, which could also cap overall cost growth, considering that salaries account for 40-50% of the total cost of a new-build, excluding land,” Mr Davidson said.
“It wouldn’t be a surprise to see the annual rate of change in the CCCI run at 3-4% throughout the year, with builders still reasonably busy but not facing the intensity of recent years.”
He noted the decline in new dwelling consents suggests that this softer phase for activity could also be a pattern that remains for some time.
“Although it's unlikely costs for households potentially looking to buy a new-build or commission their own project will get any cheaper, at least costs shouldn't be spiking higher either."
“Encouragingly, demand incentives such as lower deposit requirements under the LVRs for people to invest in new-build properties should give developers some degree of confidence to keep bringing forward new projects. In the long run, this new supply is what we need to keep housing affordability under some kind of control,” he said.
The CCCI report measures the rate of change of construction costs within the residential market for a typical, ‘standard’ three-bedroom, two-bathroom brick and tile single-storey dwelling.
To read the report, visit www.corelogic.co.nz/reports/cordell-construction-cost-index.
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11 Comments
What happened to the Panasonic homes that Mike Greer was going to bring in from Japan a few years ago?
Seems like a great idea to me. It could be seen as a solution for our falling birth rate so should get government backing. Probably doesn't fit with National's high house price agenda though.
I remember that. I think Panasonic offred to build a factory in the middle of North Island if government guaranteed a purchase of a few thousand homes. Govt probably looked at it and realised that quality flat pack housing would sink the NZ economy pretty damn quickly.
Yup - the Stats NZ CPI measure of construction cost (which surveys builders what builders are actually building) has risen 87% over the past 10 years. During the COVID materials shortages, the cost of timber and steel rose far more than brick and tiles so the cordell stuff only showed about half the peak inflation that the CPI did.
We are at the final stages of our build. 2 story house with a $1.1m build cost, almost $5k per sqm. Nothing fancy except a little bit extra glass and tiled floors. (that's the building only, land cost is like $500k).
Cost to build here is ridiculous. Only way we can afford it is a decade of saving, some lucky investments and high incomes. If things keep going as they are though, we will probably be the last who can afford it, most mid 30's couldn't even dream of doing it, even with decent incomes. I look around at my well paid workmates and most mid 30s are struggling still, those with access to the bank of mum and dad have bought 5-10 years ago and made out like bandits.
I guess the question is: What has made it so expensive to build?
My theory is a rapid dropping in mortgage interest rates has enabled increased borrowing amounts. Builders, Manufacturers etc will adjust their prices based on what people are able to spend. You know, like how rapid printing of money = inflation, a rapid expansion in money via mortgages that are directed predominately at one industry sector, will result in inflation in that sector.
Property will be on the way up shortly, esp. in Auckland and some surrounding suburbs.
Cost of building on the way up, Auck Council restricting subdivision, Council fees and consents increasing, rents on the way up will incentivise ownership, mortgage rates falling and lastly landlords will be able to deduct interest after April 1.
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