Residential construction cost pressures may be showing the first signs of easing

Property / news

Building costs for new homes may be starting to flatten out

8th Feb 23, 12:00pm by Greg Ninness

The average size of new homes may be shrinking but the cost of building them keeps going up.

Ten years ago, in the fourth quarter (Q4) of 2012, the average size of new homes consented in New Zealand was 202 square metres. By Q4 2022 that had shrunk to 141 square metres. That's a 30% reduction over the last decade, according to the the latest building consent figures from Statistics NZ.

However over the same period, the average cost per square metre of building a new home almost doubled, from $1493/square metre in Q4 2012 to $2928/sqm in Q4 2022. (These figures are based on the construction cost estimates at the time a building consent is applied for and exclude non-construction expenses such as the cost of land).

Part of the reason for the reduction in the average size of new homes is the move away from standalone houses and the increasing prevalence of multi-unit developments such as apartments, townhouses and home units.

In Q4 2012 standalone houses accounted for 82% of all new dwelling consents.

By Q4 2022 standalone houses were well in the minority, accounting for 41% of new dwelling consents.

The average size of standalone houses consented at the end of last year was 190 square metres. The average size of townhouses and home units was 108 square metres, with apartments at 93 square metres.

Building costs have soared, but are cost pressures starting to ease?

The increase in build costs that we have witnessed over the last 10 years has occurred across all dwelling types, with smaller dwellings such as apartments showing the biggest cost increases.

In the 10 years from Q4 2012 to Q4 2022, the average, estimated build cost per square metre for new standalone houses has increased by 93%, while townhouses and home units are up by 92%, while retirement village unit build costs are up by 161% and apartments up by 149%.

However those cost pressures may be starting to ease.

The graph below show the average build cost per square metre for all new dwellings consented between Q4 2012 and Q4 2022.

It shows particularly strong increases in costs over the 12 months from Q3 2021 to Q3 2022 but then a flattening off at the end of last year.

Whether that is part of a longer term trend is too early to say, but it may be a sign that the spectacular increases in residential building costs that have occurred over the last few years may be coming to an end.

A detailed national and regional analysis of building consent figures, including quarterly changes in the average size and average build cost by dwelling type, is available on our Residential Building Consent Analysis page.

A similar analysis for commercial buildings (factories, warehouses, office and retail premises) is available on our Commercial Building Consent Analysis page.

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52 Comments

by Advisor | 8th Feb 23, 12:20pm 1675812038

In 2020, local and central government taxes and charges contributed 21 percent of building costs.

Seems like perverse incentive for the Crown to help ease building costs in NZ, which would adversely affect their GST and PAYE revenue.

by makechange | 8th Feb 23, 1:11pm 1675815083

Does that include connections to public networks such as water?

There's benefit from having checks done so that you can have confidence your house is built right, out of harm's way, and will be functional because of network connections. There's also benefits from having a nice neighborhood to live in, which all costs.

by GV 27 | 8th Feb 23, 1:29pm 1675816158

There's also benefits to existing landowners who like to ring-fence their bits of the city and force the development into areas that don't have the infrastructure to support it.

That doesn't seem to cost them a thing, it just costs everyone else.

by Advisor | 8th Feb 23, 1:36pm 1675816579

The civil & infrastructure costs are just 3-5% of total build cost (including land), depending on which local jurisdiction the site falls under. Which means up to 16-18% of the overall build cost goes into central government coffers.

Is the value being generated by the central govt 3-5x the value added by councils, 1.5x labour or the same as materials?

by HouseMouse | 8th Feb 23, 1:41pm 1675816887

It’s a significant cost component but it’s only fair that tax is paid on building supplies, right? Should the building sector get a special exemption? And even if they did, can we be confident that those cost savings would be passed on?

by Advisor | 8th Feb 23, 2:15pm 1675818924

Nobody is arguing tax fairness here. The question is about what has the central government done in the last few years to make new builds easier or better for the growing share of the pie they receive.

There is merit in Seymour's proposition of the central government sharing some of the GST revenue from new construction with councils as infrastructure funding. Much better than councils taking on more debt or burdening house buyers with more costs (development contributions, etc.).

For example, while Central Otago was going through a construction boom where the industry (and govt) filled its pockets, QLDC had to amass an eye-popping 227% debt-to-income ratio to keep up with this rapid growth.

by Nzdan | 8th Feb 23, 2:50pm 1675821045

Maybe every home owner that builds a new house should be able to claim a tax deduction after handover?

Send IRD the final invoice, proof of title and they issue a refund of xx%.

by Pa1nter | 8th Feb 23, 1:46pm 1675817178

From what I can see, the added value is almost zero, or negative. They now have people inspecting inspectors. 120k+ a year just to generate communication along the lines of 'are you sure this is right'?

by Spiceeh | 8th Feb 23, 3:17pm 1675822640

Inspectors inspecting the inspectors wouldn't be necessary if we actually held people accountable for the quality of their work and decisions eg if an inspector signs off on something and it turns out to be a future issue then they should have to cop some or all of the remediation costs. Yes they will need insurance to cover themselves, but if they are doing their job thoroughly they should have no concerns about ever having to make a claim.

Accountability is sadly lacking in almost all bureaucratic and business practices these days. Fines are just not enough as they just become a cost of doing business, never being enough to curtail the bad behaviours or cover the costs they cause, especially at scale. This is true at all business levels. Costs must be covered, fines levied AND jail time where appropriate should all be options. Watch how quickly things straighten out if all those things were a consequence of businesses actions.

by Pa1nter | 8th Feb 23, 4:10pm 1675825850

In this specific instance its the client employing and engaging their own quality control over the project managers quality control.

It's ideological more than anything, and this person's role is to generate communication and try and find issues. So far all they do is waste everyone's time.

by BeeBop | 8th Feb 23, 9:03pm 1675843429

The amount of sign-off going on now on shocking work is appalling. Even the Builder's Board seems a bit 'confused'.

by gnx | 8th Feb 23, 3:31pm 1675823500

Aren’t we lucky we don’t have to pay $30k of consent fees and design permits to put a landrover on the road.

but that’s what standardisation does for a product,or lack of

just spent half an hour explaining to someone why in home depot they have an isle for window sets in the US but here they are all custom made so you can’t get a mass produced high value one. but one example of how screwed the industry is

i hope half of them go broke… builders,material suppliers,banks and investors

they will when the customer can’t borrow any more

what a bloody racket

by Pa1nter | 8th Feb 23, 6:03pm 1675832581

This is why you don't go metric I guess. We have to support two different measurements for a start.

Took a while for NZ to even standardise on 2.4 stud, now everyone wants taller again (and taller than their friends ceilings).

Until we resolve new house supply in NZ nothing will get measurably better.

by Yvil | 8th Feb 23, 2:41pm 1675820499

Advisor, where do you get the data "In 2020, local and central government taxes and charges contributed 21 percent of building costs." from ?

by Matt_09 | 8th Feb 23, 12:56pm 1675814210

I’d say that figure was on the light-side compared to what I’ve been quoted on the north shore to knockdown and rebuild our place!

by nktokyo | 8th Feb 23, 1:29pm 1675816155

Mate is a developer and just got sent through another set of materials price increases. Fletchers are due to announce their annual 15% hike also.

Where do you source the info for this story?

by HouseMouse | 8th Feb 23, 1:48pm 1675817332

Agree, it seems way off. And see my comments below.

it comes from building consent data I think

by Pa1nter | 8th Feb 23, 1:43pm 1675817039

Yeah Gibs up 15% as of February.

by HouseMouse | 8th Feb 23, 1:46pm 1675817219

There’s no way the residential development sector is going to coming through all of this. It’s one blow after another….

by agrisorb | 8th Feb 23, 9:45pm 1675845900

Stop saying Gib.

Its plasterboard , and now cheap as.Imports and flecters faround caused councils to accept other board.

CSorry for the rant, the machines that make board ,including gib all come from canada.

by Pa1nter | 8th Feb 23, 9:54pm 1675846477

I'm going to keep calling it Gib sorry. It's in the vernacular here like Hoover is a vacuum or gladwrap is cellophane wrap.

The parallel stuff isnt much cheaper and it's less convenient to source.

by Neddludd | 11th Feb 23, 8:53am 1676058800

Im wondering if this guy kept importing the product from thailand or it was a one off.

https://www.rnz.co.nz/news/business/468830/social-housing-supplier-turn…

by HouseMouse | 8th Feb 23, 1:45pm 1675817150

Speaking of Fletchers, I wonder how their residential business is tracking, I have little to no visibility of it.

Like most developments around, their new housing looks priced way too high to me, in this market ( and with current mortgage rates).

I would be very surprised if they aren’t struggling.

by nktokyo | 8th Feb 23, 3:41pm 1675824117

They will make sure they can flog enough materials at sky high prices in the flood rebuild.

by gnx | 8th Feb 23, 3:45pm 1675824306

Have a look at the share price

fletchers is 100 hundred small unmanageable manufacturing units and a couple of large gouging monopolies

oh and a distribution arm that’s fifty years out of date

can someone tell me how much they have made by increasing the values on land, and how much by supplying products to customers

these corporates might be in real trouble if the land components get revalued

popcorn time

by Hemi Ti Wire | 9th Feb 23, 9:53am 1675889614

fletchers biggest customer...

the NZ Government!...

who accepts over priced Fletchers quotes ..

you guessed it!

by Simon | 8th Feb 23, 1:37pm 1675816634

"However over the same period, the average cost per square metre of building a new home almost doubled, from $1493/square metre in Q4 2012 to $2928/sqm in Q4 2022"

And yet people are still wondering why the price of an already built consented and landscaped second hand house is so high.

NZs boutique building industry.

by HW2 | 8th Feb 23, 2:21pm 1675819295

Those same people also are quite good at denying there is a connection between the value of existing and the cost of new housing. Point out the short term divergence and that existing values are going down

by Hemi Ti Wire | 9th Feb 23, 9:55am 1675889724

And by 2913 it will be $1800

It will have to be to stay in business!

by HouseMouse | 8th Feb 23, 1:39pm 1675816781

I find it very hard to believe some of the data quoted here. Very hard.

A nudge under $3k per square metre seems at least 15% too low.

The average sizes of different housing types also seem strange. Intuitively I would have thought average size of townhouses would be circa 80-90 square metres, and apartments 70-80 square metres. Even this seems high, but I imagine markets outside Auckland might have some larger townhouse and apartments, on average.

by Greg Ninness | 8th Feb 23, 1:55pm 1675817717

You are partially correct. The average size of new dwellings consented in Auckland in Q4 2022 was 136sqm compared to the national average of 141 sqm. But that was because the mix was different in Auckland, where there is a greater percentage of apartments/units/townhouses. However the average size of the various property types in Auckland is actually (and perhaps surprisingly) bigger in Auckland than nationally. - Auckland Houses 201 sqm v NZ houses 190sqm; Auckland apartments 104sqm v NZ 93sqm; Auckland townhouses/units 116sqm v NZ 108sqm.

by HouseMouse | 8th Feb 23, 2:07pm 1675818469

I still struggle to believe that data, perhaps there’s an issue with the integrity of the data.

The majority of townhouses being built in the Auckland market are two bedroom ones typically ranging from 65 - 80 square metres. Then three bedroom ones from 90-110 square metres. Of course the higher end of the market builds bigger than this, but that higher end is probably only circa 10-15% of townhouses.

I don’t know, maybe the data is accurate, it just doesn’t seem quite right to me based on what I see day in and day out.

Maybe the much bigger sizes in the higher end of the market are having an outsized influence in pulling the averages up.

by GV 27 | 8th Feb 23, 2:44pm 1675820648

Add a 30sqm garage and it adds up quickly, makes houses sound a lot bigger than they actually are.

by HouseMouse | 8th Feb 23, 3:00pm 1675821622

That’s true, although a large proportion of the townhouses are lucky to have a carport, let alone a garage.

by GV 27 | 9th Feb 23, 8:29am 1675884569

The other thing that matters more tbh is functional storage within the house, smart use of wall cavities etc.

Quite telling that some residents in Auckland are up in arms about street parking when they're using their garages for general storage.

They don't respond positively when you tell them they don't have an inherent right over anyone else to use public space for their car storage.

by JohnfromtheTron | 8th Feb 23, 2:36pm 1675820204

Good mark up these then, selling for over $7000 per square meter. I suppose when your paying with Tax Payers dollars it doesn't matter.

https://www.stuff.co.nz/national/131135304/unique-purchase-sees-kinga-o…

by HW2 | 8th Feb 23, 3:40pm 1675824025

I got 5k/sqm (includes development cost)

3370sqm for 17m excl raw land cost

by blobbles | 8th Feb 23, 5:32pm 1675830723

So we are subsidising the industry massively including the Gucci waving real estate agents. No wander gouging is happening, the industry has their noses in the trough.

Meanwhile, we are trying to build and 3000 per sqm is laughable. 40% more than that is likely. 60% more than that is possible.

Another friend who just got a place priced based off the architects plans came in at $7000 per sqm. They laughed so hard thinking it was a joke, but saw the architects face who was serious. They architect said they *may* be able to get it down to $5000 per sqm. This is after paying them something like $20k already for basic design, will go close to $80k for the architect if it all goes through.

None of this makes any sense.

by Hemi Ti Wire | 9th Feb 23, 9:56am 1675889787

That include the section brqh;!

by Yvil | 8th Feb 23, 2:49pm 1675820980

HM, the roughly $3'000/m2 comes from the building consent, this is an estimate the Architect puts in at the time of applying for a building consent and based on estimates of the previous year, so it's already out of date in a fast moving market, . Also when I was still doing architecture, I would low ball the building cost price, as it affects the consent price the Council charges. So, in summary, yes today's building costs would certainly be at least 15% higher than $3'000/m2.

by HouseMouse | 8th Feb 23, 3:01pm 1675821698

Exactly, lowballing the cost to get reduced fees. It’s kind of dishonest isn’t it?

by WellingtonInvestor | 8th Feb 23, 6:10pm 1675833006

The estimates given to council on building consents are often very low. Especially as it can often affect future rates.I saw a house that I know cost a million to build, only have an estimated build cost of 400k.

by Hemi Ti Wire | 8th Feb 23, 2:52pm 1675821168

Sooo . Housing Supply is overcoming demand and now they lower prices... Yet volumes are down which means they should be more expensive. . It's a fecking con. the whole pricing system is just deception

by agrisorb | 8th Feb 23, 9:49pm 1675846176

89/90/91

No demand for rentals, house and land down big time.

Only 1 thing. Immigration and departure

by bw | 8th Feb 23, 3:21pm 1675822892

(DP)

by Dale Smith | 8th Feb 23, 3:53pm 1675824796

Greg, Please, for the love of the baby Jesus, and the wee donkey, do not quote m2 comparisons between free-standing dwellings and other types including many townhouses and all apartments, without including the fact that if the garage touches the dwelling, then it is included in the m2 size. In contrast, in those dwellings where the garage is separate from the dwelling like many townhouses and all apartments, then the garage is NOT included in the m2 size.

This can affect the comparison difference by up to 36m2, even if both have garages.

Also, the cost increases should be split between value-added eg improved building standards, and non-value-added, eg increases solely due to monopolistic supply and demand imbalances.

by nktokyo | 8th Feb 23, 4:07pm 1675825651

Smaller places have higher m2 costs all else being equal. It costs more to add a kitchen than a bedroom.

by starrider | 8th Feb 23, 8:09pm 1675840190

I disagree. When you build a 10 unit apartment block you only have 1 roof and 4 exterior walls. Rather than 10 rooves and 40 exterior walls. Plus only one architect. One water connection, rather than 10 and one power connection, rather than 10. Economy of scale.

Townhouses are more per sqm as they have less shared walls and rooves.

by Pa1nter | 8th Feb 23, 8:37pm 1675841869

Walls are cheap.

Kitchens and bathrooms are expensive.

Your build requirements also change when having multiple occupiers of one building.

by agrisorb | 9th Feb 23, 7:45am 1675881947

10 unit apartment block means 10 power meters. and 10 water meters .

Oh , in auckland that is $15 k per unit each water connection. ouch 150 k for just the water .

by pythagoras | 8th Feb 23, 5:41pm 1675831275

I would love to buy an apartment in Auckland for the lifestyle, but my impression is that almost all apartments in New Zealand are shonky and need structural remediation, e.g., https://www.primetv.co.nz/a-living-hell-apartment-disasters

Serious question: are there any structurally sound apartment buildings out there, and how does one know in advance if the building is sound?

by nigelh | 9th Feb 23, 9:20am 1675887624

I'd suggest you look at nothing built earlier than 2015. Although this is the four years after when NZS 3604, timber residential houses, was heavily revised and nothing to do with apartments, other stds re earthquake will have been revised as well. An older building may only have achieved 60%? of the new earthquake stds and deemed to be OK.

I'd also be wary about an ex leaky apartment that's been fixed.

What's put me off on apartments is the sectional title and the management of the apartments. I understand its not that good. You need to look at the books.