Residential building costs stabilising but fewer homes are being built

Property / analysis

Number of new homes being consented down 36% in just over two years

7th Feb 24, 1:35pm by Greg Ninness

There's good and bad news in the latest building consent figures for anyone looking to buy a new home.

The good news is the building costs appeared to flatten out in the fourth quarter of last year, but the bad news is the number of new dwellings being consented continues to decline.

Interest.co.nz's latest Residential Building Consent Analysis shows the average consented build cost of new dwellings was $3230 per square metre in the fourth quarter (Q4) last year, barely changed from $3225 in the third quarter (Q3) of 2023.

That flattening in average build costs comes after three years of steadily rising costs.

Since the first quarter of 2021 the average consented build cost for new dwellings has risen from $2436 per square metre to $3230 per square metre at the end of last year, up by a third over the three year period.

Unfortunately the stabilisation of building costs did not apply to all dwelling types.

Average consented build costs for stand alone houses, townhouses and home units and retirement village units were all either flat or in decline in Q4 last year, while apartment build costs shot up to a record high of $6263 per square metre, up 17% compared to Q3 last year.

While average build costs were flat overall, the number of new homes being consented continued to decline.

Just 8505 new dwellings were consented throughout the country in Q4 2023, which was the lowest number consented in any quarter since Q4 2018.

The number of new homes being consented peaked at 13,251 in Q3 2021, so numbers are now down by 36% from their peak (see second graph below).

So while residential construction costs appear to be mostly stabilising, at some stage there is likely to be significantly fewer new homes becoming available.

The full analysis of residential building trends, including regional figures for Auckland, Waikato, Bay of Plenty, Wellington, Canterbury and Otago, is available on our Residential Consent Analysis page.

The comment stream on this story is now closed.

•You can have articles like this delivered directly to your inbox via our free Property Newsletter. We send it out 3-5 times a week with all of our property-related news, including auction results, interest rate movements and market commentary and analysis. To start receiving them, register here (it's free) and when approved you can select any of our free email newsletters.

We welcome your comments below. If you are not already registered, please register to comment

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

18 Comments

by MCNZ | 7th Feb 24, 1:42pm 1707266546

Greg,

Why do we use the metric of Building Consents and not , Dwellings that have actually been constructed ie Code of Compliance?

I've heard numbers that 1/3 of all Building Consents never actually get constructed, is that a rough statistic..

Thank you

Ryan

by Greg Ninness | 7th Feb 24, 2:00pm 1707267613

Hello Ryan,

We do publish a Code Compliance Certificate report every month but only for the Auckland region. That's because Auckland is the only region for which the figures are readily available.

However CCC figures do have limitations because they do not include data as floor areas or build costs.

Consents are still a good indicator of future activity trends and are much more comprehensive.

by Flying high | 7th Feb 24, 2:12pm 1707268325

Building activity is a biggie for our economy, so you ask a good question. But as a general rule NZ is way behind for reporting of stats compared to other countries. The USA counts "housing starts" and reports inflation monthly.

Que sera sera

by MikeM | 7th Feb 24, 7:04pm 1707285864

Housing starts is much better metric. A building consent is very broad and can include something like a deck exceeding one metre in height.

by Greg Ninness | 8th Feb 24, 9:21am 1707337296

The reports we publish are for new dwellings only. Something like a new deck would be an alteration to an existing dwelling and would be covered separately.

by Cur8or | 7th Feb 24, 3:05pm 1707271528

Steady as she goes...

by 1harlow1 | 7th Feb 24, 3:12pm 1707271929

Just out of interest, how does RBNZ track total value of housing stock quarterly without tracking completed new builds?

by ex socialist | 7th Feb 24, 3:41pm 1707273678

I think that there is an anomaly in the building consent data. Around the covid period tens of thousands of homes were consented but, because of the building costs they were not started. I think there is a large pool, potentially 20,000 homes consented but not started. Therefore the fall in building consents has a far larger lag to a fall in completions than many commentators are allowing for. I think many of those consents were issued at a time when the purchase price for the land was lower, and the value on completion was still pre-covid. Many of these homes are still financially viable (although without the windfall gains of the covid boom).

I think we will see evalavated building completions for some time. That those homes sold off the plans are going to be rentals looking for new tenants.

by HouseMouse | 7th Feb 24, 5:32pm 1707280337

I don’t really agree.

Many of the dwellings consented from 2021-2023 were on properties purchased for crazy prices in 2020-2022. A speculative frenzy was occurring at the time.

Of course a portion would be on properties purchased before 2020, for comparatively lower prices. However the combination of soaring construction costs and high interest rates has rendered many potential projects unfeasible.

what we don’t really know is how many projects sold off the plans in 2022 at peak price stupidity. Some of those projects will be feasible, given suckers signed sales and purchase agreements at peak prices. Even so, many of those won’t go ahead either due to construction costs making it unfeasible, or project financing challenges. In those scenarios, a few buyers will be breathing sighs of relief - they will be the lucky ones

A proportion of projects that are proceeding are going to create pain for some buyers. People who bought off the plans at peak price stupidity in 2022. In many cases, market value will be 10-20% lower at completion in 2024, and interest rates north of 7%.

by nigelh | 7th Feb 24, 6:49pm 1707284975

extract from the office of seniors feb24 newsletter. ....."One of the policies we’ve brought to government is to make building subsidiary dwellings easier, which will allow for more multi-generational living" ....

Anyone know if changes to the RMA and/or the Building Act already done or what its exactly about?

by MikeM | 7th Feb 24, 7:05pm 1707285941

We're on our way 50% down before a turnaround. Some tradies won't make it unfortunately.

by HughJorgan | 7th Feb 24, 9:08pm 1707293316

These numbers are somewhat meaningless. Either the cost of building comes down or it’s all going to shit.

$7,000/sqm to build a Signature Homes house tells you that the economics don’t work. The whole market (supply chain) is just stuffed and bloated.

by Nzdan | 7th Feb 24, 10:30pm 1707298221

The cost of building chased borrowing power on the way up. Somewhere, somebody is is gouging. "Scale of economies" would have a very small part.

If interest rates stayed over 7% from 2008 to today, guaranteed new builds wouldn't be the price they are.

by HughJorgan | 8th Feb 24, 8:14am 1707333275

Absolutely agree. When ITM take all their builders away on a junket they need to start discussing something useful instead of simply thinking that there is an endless stream of work coming their way.

by redcows1 | 8th Feb 24, 8:22am 1707333764

Commenters often point to government departments expanding to fit their funding. They often say this implying it doesn't happen in private enterprise. Well sorry people that's exactly what happens and the building supplies industry would be a classic case study.

by peter.may | 8th Feb 24, 11:16am 1707344160

Gouging? We had two quotes for a volume item in a build. Difference was 56% - which totaled out to $7,000.00 on that job. So yes - there is significant price gouging going on

by MCNZ | 8th Feb 24, 1:09pm 1707350973

So it would seem that 30% of all Building Consents for New Residential Dwellings do not get constructed.

Cost of Labour, materials and Finance + Regulatory Delays are crippling New Builds and therefore reducing any increase in actual Housing Stocks...

When a consent for an apartment block is granted and then not constructed " is that classed as a single Building Consent" or "100 dwellings"?

Even the bulk brand builders are feeling the heavy downturn ,,, so where are the new 139,000 migrants going to live?

by wingman | 11th Feb 24, 10:40am 1707601246

The cost of building a new house won't be declining. I've got a new build starting this coming week in Auckland, so far I've spent $40,877.

That's architect, Council, engineer and surveyors. And it's not a mansion, it's an average sized house.

That won't be the final tally either.