QV says building costs are flattening out

Property / news

Residential building cost inflation dropped to 1.8% in 12 months to May this year from 4.9% in the 12 months to December 2023

10th Jun 24, 12:01pm by Greg Ninness

Cost pressures in the building industry are continuing to ease, according to the latest figures from QV's CostBuilder database.

CostBuilder follows pricing trends for more than 60,000 separate building industry costs. It found the average cost of building a three bedroom home in the main centres increased 1.8% in the 12 months to the end of May, down from 4.9% in calendar year 2023, and 9.5% in the 12 months to June 2023.

The figures suggest price increases are likely slowing even further with costs increasing by just 0.3% over the three months to the end of May.

"The rate of building cost inflation is certainly on the wane," QV CostBuilder spokesman and quantity surveyor Martin Bisset said.

"This will be welcome news to all those who are currently contemplating or pricing up new building projects."

The biggest price increase over the three months to May related to exterior walls/finishes which increased by an average 0.8%.

Heading in the opposite direction were framing costs which declined by 0.7% over the same period due to a reduction in the price of structural steel.

Site preparation costs were down 1.6% overall.

Cost inflation for non-residential buildings is also slowing, with an average increase of 0.9% over the 12 months to the end of May this year, down from 4.7% in the 12 months to December 2023.

"Significant economic headwinds continue to blow, which has drastically reduced activity across the wider construction sector," Bisset said.

"For consumers, the upside of that is there are fewer capacity constraints and therefore less upward pressure on pricing.

"Contractors are having to put their best price forward in order to win work," he said.

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70 Comments

by Flying high | 10th Jun 24, 12:11pm 1717978315

Up 1.8 over 12 months, the most recent data could be down. The number of builders I've spoken to who are searching around for work and taking small jobs to make connections hoping it leads go something bigger

by JimboJones | 10th Jun 24, 12:14pm 1717978465

Seems like another case where monetary policy is working. JFoe?

by ChrisOfNoFame | 10th Jun 24, 12:45pm 1717980341

Questions to ask yourself:

1. At what cost?

2. Are there better ways?

(As a wag wryly observed, "Shooting a few price setters would work faster. And with far less collateral damage.")

by JimboJones | 10th Jun 24, 1:14pm 1717982046

The RBNZ has adjusted the cost of debt to reduce demand. That seems fairly sensible to me, compared to say price setting or shooting people.

by tezw21 | 10th Jun 24, 1:11pm 1717981883

But has it reduced demand or simply made it uneconmic? And what will happen to the pent up demand when rates drop?

by JimboJones | 10th Jun 24, 1:16pm 1717982207

Who said rates need to drop? They aren’t exactly high at the moment, they are only high compared to emergency covid settings and deflation settings.

by sgtshortcut | 10th Jun 24, 2:02pm 1717984939

The one year rate is the highest its been for over a decade and a half...how is it not high?

by JimboJones | 10th Jun 24, 2:17pm 1717985854

I guess it depends on how far back you look. You could argue that 3% is a high OCR by picking a time window, but I would call that extremely low.

by 1689 Baptist | 10th Jun 24, 2:56pm 1717988209

A while back Don Brash recommended an adjustable tax on fuel would be a better way to manage inflation than the OCR. I agree.

by ChrisOfNoFame | 10th Jun 24, 5:06pm 1717996006

Did he indeed? Brash had some good ideas on occasions. (Alas not many got past the policy settings at either National or Act)

Got a link?

I'd be interested to know if the goal was price smoothing as the result of an oil shock (as I and others have suggested before) or whether his goal was inflation fighting directly.

by Zwifter | 10th Jun 24, 12:57pm 1717981046

Yeah down but its still going up, percentages on top of percentages so no help really until the costs actually start going negative, can you see that happening ? Probably not.

by 1689 Baptist | 10th Jun 24, 2:59pm 1717988360

Have you ever lived in a deflationary environment? It's awful. There is a reason the target range is 1-3%. 0.5% deflation is more destructive to society than 5% inflation.

by Flying high | 10th Jun 24, 3:58pm 1717991934

Its going up yoy but workloads have dropped ober the last 6 months ... my shares are up over the last 6 months but still down 50 percent over the year, that type of thing

by Zwifter | 10th Jun 24, 1:00pm 1717981254

I would be interested in a quote these days to build a new 2 storey 3 bedroom 175sqm house on a steep site that needs a lot of ground prep. My guess its pretty eye watering still to replace my existing house.

by Pa1nter | 10th Jun 24, 1:38pm 1717983491

If it's steep then the requirements to mitigate erosion will likely make it considerably more expensive.

How such costs should be factored into RBNZs decision making is a bit beyond me.

by Zwifter | 10th Jun 24, 2:01pm 1717984877

I would say the landscaping alone would be $60 to $80K, there is no grass on a 550sqm section. It would have been very expensive even back in the day when it was built.

by nigelh | 11th Jun 24, 1:08pm 1718068084

Try Cordells insurance calculator (CoreLogic). I feel it at least 10% and could be as high as 20% more than the actual cost. Demolition is extra but that cost is defined so can easily be taken out.

by 1689 Baptist | 10th Jun 24, 3:01pm 1717988486

Based off what your telling us it will be about $4000-$4500 /m2 minus the land purchase.

by Zwifter | 10th Jun 24, 6:25pm 1718000746

Cheers, Ouch the RV may be in the 900's but to build this now and landscape it would be like $1.25M.

by 1689 Baptist | 11th Jun 24, 4:31am 1718037118

Yes, the huge replacement cost is the main reason I think we will/have hit a house price floor sooner than many on here think or hope.

Doing the same replacement calc on my house, it is worth 400k above RV.

by cromp | 10th Jun 24, 1:02pm 1717981350

The recent story about the Zuru/Mowbray people's house factory in China is interesting. If they can disrupt the present way houses are put together with thousands of parts each with a cost plus plus price in New Zealand could be a good thing.

by HouseMouse | 10th Jun 24, 1:12pm 1717981921

We’ll see. I am skeptical. Heard this sort of thing many times over the past 10-15 years.

by Greg Ninness | 10th Jun 24, 1:18pm 1717982323

It's already happening here: https://www.nzherald.co.nz/business/kainga-ora-modular-housing-units-fr…

by JimboJones | 10th Jun 24, 1:21pm 1717982463

I am not convinced it will work on the open market. Would you pay $900k for an imported Chinese house, or $1 mil for a NZ built one? I don't think I'd take the gamble...

by Pa1nter | 10th Jun 24, 1:39pm 1717983563

People have done that with most consumer items, and price is most people's way of determining value, so you never know.

by JimboJones | 10th Jun 24, 1:59pm 1717984781

True, but in this case there is a lot more to lose. Because the land / services / foundations / resource consent / etc cost so much, the imported house would need to be a lot cheaper to make a dent. How do you make it that much cheaper?

by Pa1nter | 10th Jun 24, 2:47pm 1717987631

Make it a lot crappier.

I've been involved in enough instances of home owners selectively sourcing the cheapest, nastiest house fittings/bathroomware to save a buck to know there's at least some market for this sort of thing.

The joke is the labour required to make cheap materials work semi-properly eclipses the hardware cost savings.

by Uncle Bulgaria | 10th Jun 24, 1:56pm 1717984597

If the Chinese one is better built, then in a heartbeat.

by Advisor | 10th Jun 24, 3:00pm 1717988423

Some alarming stats from the sector:

New construction data from Stats NZ released in April shows that it takes around 569 days on average for a home to be built after it receives a building consent

Then there is productivity: the output per worker within the construction sector was a measly 81K in 2023 as against an economy-wide (minus construction) 139K.

No wonder a million dollar doesn't go too far in the NZ property market because you pay a huge cost for inefficiencies within the system.

by Pa1nter | 10th Jun 24, 3:27pm 1717990077

Most trades want to smash out their work as quickly as possible - if things are done to a price (which is most of it), the longer you take the less you earn.

Much (most) of the inefficiency is bought about by compliance, which the industry doesn't have much control over.

Would also be interesting to compare your stats to 2019. Post COVID construction work has been absolute dog tukker.

15 years ago you could knock up a 3 bedroom house in around 100 days.

by JimboJones | 10th Jun 24, 3:36pm 1717990605

I wonder if the solution is to allow houses to be built without building consent - with resource consent or within planning laws and less than 3 stories. Buyers / renters can easily see which houses are consented from council records, if you buy/rent a non-consented then it is buyer beware. The council should be allowed to force any house that is not safe or sanitary to be fixed / ripped down. So basically the building code becomes an opt in, and maybe other private quality control options would also become available.

by Pa1nter | 10th Jun 24, 4:00pm 1717992049

I think probably, NZ needs to take a good hard look at the costs we're incurring vs the benefits of all our regulation.

Workplace health and safety for instance, comes at a cost of thousands of dollars a year, per worker. We're around 20 years down the path of reasonably stringent health and safety practices. Yet this has not really dented our instances of workplace deaths and injuries (deaths are up, last time I looked).

by 1harlow1 | 10th Jun 24, 4:37pm 1717994237

So like a third world country then? What happens when there's a fire/earthquake? There much more at stake than a potential purchasers financial risk.

If council inspectors are being relied upon to take enforcement action (of which they currently do basically zero), they essentially have to undertake all the inspection work anyway, except suddenly nobody is paying for it via the building consent fee.

No doubt there are big systemic issues with the current regulatory system, but you absolutely need a legislatory framework around construction standards and somebody needs to verify/certify. It's a mix of public/private entities in Aus/UK/US...

Remember, partial deregulation is what caused the leaky building crisis.

by Pa1nter | 10th Jun 24, 4:45pm 1717994715

So like a third world country then?

One of the ones with buildings hundreds or thousands of years old, built without any permits whatsoever?

by 1harlow1 | 10th Jun 24, 5:19pm 1717996773

I don't see your point.. are you suggesting that all will be well if everyone just employs a master stone mason with membership to a medieval guild?

by Pa1nter | 10th Jun 24, 5:24pm 1717997043

My point is we live under the assumption that more regulations = better buildings.

But yes if you employed any master tradesperson that would offer a better result than making the rules the biggest priority.

by 1harlow1 | 10th Jun 24, 5:29pm 1717997397

There's a pretty big jump from no regulation is demonstrably dangerous to more regulation = better buildings. I certainly don't believe that myself. Particularly when the people undertaking the regulation in practice are lacking in the requisite skills.

Of course employing master tradespeople would lead to better results, but that's a seperate issue and unfortunately there is a shortage of such people across all trades.

by Pa1nter | 10th Jun 24, 8:04pm 1718006660

We managed to build long lasting housing in NZ for over 100 years with a nominal amount of regulation and oversight. I've also spent a fair amount of time living in 3rd world houses, that function perfectly fine.

Leaky homes were primarily caused by form over-ruling function. No eaves. Silicon as a water barrier. Cladding with no fall lines.

Rather than just saying "hey, stop building such poor designs", we did what we usually do whenever something goes wrong, and instead apply an all encompassing, heavy hand that the entire populace/economy has to pay for.

Issues are now exacerbated by having so much of the costs being absorbed in design and compliance, that the quality/income of the people actually building the dwellings is a low priority.

by 1harlow1 | 10th Jun 24, 9:05pm 1718010306

Leaky homes were primarily caused by form over-ruling function. No eaves. Silicon as a water barrier. Cladding with no fall lines.

True, but by far the worst cases were/are those where design and workmanship defects are combined with untreated kiln dried timber framing. Why was untreated framing being used? A change in the regulations.

"hey, stop building such poor designs"

And how do you stop people building poor designs..?

Anyway, I agree the current system doesn't work particularly well. That doesn't mean you can just deregulate everything and let the cowboys have free reign.

by Pa1nter | 10th Jun 24, 9:27pm 1718011653

True, but by far the worst cases were/are those where design and workmanship defects are combined with untreated kiln dried timber framing. Why was untreated framing being used? A change in the regulations.

Those will have exacerbated the design flaws, sure, but a properly designed house isn't going to have the water ingress to rot out the timber.

Likewise a lot of the workmanship issues wouldnt have caused the same sort of damage in a house better designed to keep water out.

And how do you stop people building poor designs..?

You can have some fairly simple rules about what houses in NZ must have.

That doesn't mean you can just deregulate everything and let the cowboys have free reign.

See my problem is, I don't think regulation really stops cowboys. Just because you change the rules, they're still there. You just treat everyone like they're a Cowboy, and they have to go to added expense to verify they aren't.

It's sorta like micro chipping dogs. We have to microchip our dogs, because some dogs raised by cowboys bit some people. So all the good dog owners go to the added hassle of microchipping their dogs, and many of the cowboys don't microchip their dogs, and still raise them badly.

Just come down hard on cowboys.

by 1harlow1 | 11th Jun 24, 11:16am 1718061374

You can have some fairly simple rules about what houses in NZ must have.

So regulation then..

by interesting1234 | 11th Jun 24, 8:35am 1718051739

We managed to build long lasting housing in NZ for over 100 years with a nominal amount of regulation and oversight

While true, you could argue that those building the houses were at least in part, doing so with their own hands and sharing knowledge, so they had a very vested interest in the quality and longevity of the build, and a high level of oversight and understanding of the build. They also had plenty of old native hardwood timber to frame with, which has stood the test of time.

by Pa1nter | 11th Jun 24, 8:56am 1718052985

While true, you could argue that those building the houses were at least in part, doing so with their own hands and sharing knowledge, so they had a very vested interest in the quality and longevity of the build, and a high level of oversight and understanding of the build.

Good tradespeople are still aware of this. However in today's environment, the design and specification rules all - i.e. even if a practitioner knows the plans and specs to be inferior/problematic, they have little license to improve them.

They also had plenty of old native hardwood timber to frame with, which has stood the test of time

The nature of the timber doesn't really effect things, in the 70s we started cladding houses effectively in MDF, and then later pine, (and framing them out in pine) and these houses are also relatively trouble free, 40-50 years later.

by tis i | 11th Jun 24, 2:21pm 1718072481

People have this idea that villas and bungalows ect were built by ‘craftsmen’ who took great care in their work and are far above todays carpenters.

It’s a fallacy. Most old villas are rough as f@&k. They last because they’re a largely foolproof system and design. Kauri is an excellent building timber but it’s not perfect.

by Pa1nter | 11th Jun 24, 9:34am 1718055284

The builders of our early homes were generalists, they didn't just build the house they'd also be finishing the inside.

What they did have in their favour, was a relatively unified design and approach. Unless there's something wrong with you, if you're effectively building the same thing, every day, you get decent at it pretty fast.

Compared to these days, where the designs and engineering are constantly changing, and really diverse, you barely do the same thing more than once a few years.

This also adds to inefficiency and increased cost.

by Zwifter | 11th Jun 24, 10:03am 1718057022

Well I have only worked extensively on one old Villa in Devonport and you wouldn't build a garden shed to that piss poor standard. Basically I would pull up the rimu or other native wood floorboards and keep those to reuse and throw petrol and throw a match on the rest. I quite like the old villa "Style" so the same roof lines and a build to the modern code would be really nice.

by Pa1nter | 11th Jun 24, 10:27am 1718058445

We adopted the style because it was the most conducive to our environment and resources.

We took practicality and threw it on your fire.

by Sam B | 10th Jun 24, 2:01pm 1717984878

I don't think it's unlikely that a well-designed modular house built in China could be better than a bog-standard greige townhouse slapped together by a disinterested local builder. There are some crap builders out there. If they follow the building code, it won't fall down within 20 years, but it'll be a mouldy dump within 5.

by JimboJones | 10th Jun 24, 2:08pm 1717985303

The building code and inspections are fairly robust these days. I wouldn't take the risk on a Chinese import unless there was significant price difference, but maybe I am wrong and others would.

by earnedincome | 10th Jun 24, 2:54pm 1717988048

I imagine the Chinese option might also offer a more reliable and quicker time to build. That's worth quite a bit to many people.

by JimboJones | 10th Jun 24, 3:18pm 1717989481

Maybe. There have been a few blocks of houses go up near us recently, it seems there is a massive time lag to get consent / connections / foundations in, then one day a truck turns up with the framing and the place is on the market a few months later. I'm not sure it is the build that is the big problem, although it obviously could be done better.

by 1harlow1 | 10th Jun 24, 4:49pm 1717994977

Are they?

I recommend having a look at clause E3 Internal Moisture more closely. It's pretty much non existent. Then have a look at the changes to H1 Energy Efficiency (which is actually just an insulation standard). Then assess those against the requirements of G4 Ventilation. Then factor in the increasing levels of air tightness present in modern construction.

I think you'll find that buying a moldbox is bang on the money.

Inspections is a whole nother topic..

by earnedincome | 10th Jun 24, 2:51pm 1717987897

Greige!

Love it. I'm stealing that one.

by Matt_09 | 10th Jun 24, 2:06pm 1717985205

I know someone that has been close to the Zuru business and the cost per sqm, if can be proven to be achieved on a larger scale, Is a fraction of what your 1m build price would be with no drop in quality. Could be an absolute game changer.

by HouseMouse | 10th Jun 24, 3:16pm 1717989391

As I say above, I am skeptical. I have heard similar ideas many times before and it doesn’t work out. I guess if the new government makes it easier to import alternative products it potentially could. One of the most significant barriers in the past has been regs.

by Pa1nter | 10th Jun 24, 3:31pm 1717990275

If any layperson has a method to get construction work done significantly cheaper they can let me know and I'll give them a 20% royalty.

Averageman reckoned he knows a bricklaying machine that can have one operator that can pump out the bricks, but no further information was forthcoming.

by Zwifter | 10th Jun 24, 1:58pm 1717984692

Its not going to fly in New Zealand except for maybe state house builds. Kiwis all want a "Unique" home and hence you even get advertising making a joke of "Cookie Cutter" housing. The end result is very expensive practically one off builds that could be slashed in cost if they were all the same on the street. It gets pretty hard to change peoples mentality, it goes beyond cost.

by JimboJones | 10th Jun 24, 2:03pm 1717985034

It depends where you are, but in brownfields Auckland for example you need cookie cutter to maximise the potential of a small weirdly shaped and contoured lot combined with consent and height to boundary rules. In greenfields they already do cookie cutter to some extent.

But again there is so much money tied up in the land / consent / services / foundation / etc, that it might only be 5% more for unique vs cookie cutter, even if the house itself is 20% more.

by K.W. | 10th Jun 24, 1:44pm 1717983860

Work needs to be urgently done to bring costs DOWN not just allow them to keep going up more slowly. We need deflation not low inflation. Or we are stuffed housing wise. There is price gouging going on at all levels from council planning and consent fees, to developer contributions, to the costs of connecting power and water, to building materials, to things like having to have commercial scaffolding and a traffic management plan. Visit the Subdivision group on FB, and its amazing anyone is building anything at all at the moment.

by Nzdan | 10th Jun 24, 2:00pm 1717984831

That's what happens after 16 years of huge increases in borrowing/spending power. In 2008 the average 2 year mortgage rate was 9.6%. By 2022 it was 2.5%.

Had interest rates stayed at around 9% over the last 16 years would we have this problem?

by Averageman | 10th Jun 24, 2:47pm 1717987656

No. The stupidity of cheap debt and its ability to fuel peoples greed in a non creative way and non productive way has been toxic for NZ over that period.

by Pa1nter | 10th Jun 24, 2:55pm 1717988131

Japan manages to retain relatively cheap building costs while interest rates have been super low.

Then again they have a fairly different approach to building, and how long they want houses to last.

And I've just finished a build that's come in at double the cost of the identical building done 5 years ago, when interest rates were a good couple of percent lower than they are today. So yeah, interest rates may bare some relevance, but also maybe not as much as a simple "low rate = higher cost" hypothesis.

by 1harlow1 | 10th Jun 24, 5:16pm 1717996570

I think the hypothesis was actually lower rate = higher inflation. Which your example corroborates..

by Pa1nter | 10th Jun 24, 5:18pm 1717996738

Opposite actually. This building has been constructed in an era of 7% mortgage rates, and the last one in an era of 5% rates.

by 1harlow1 | 10th Jun 24, 9:11pm 1718010692

And what did rates do in the intervening period? What has happened to construction costs over that period?

Obviously costs are going to be higher 5 years later when you've had a period of compounding price inflation.. the cost to build isn't going to be a direct inversion of the interest rate, that doesn't make any sense, and I don't believe that was the original posters claim either.

by Pa1nter | 10th Jun 24, 9:33pm 1718012039

The vast majority of the cost increase is due to regulation changes in the interim years. It took almost twice as long to build with the changes to the construction requirements.

I'd expect it to cost about 20% more in labour and materials due to extra cost inflation.

Hence, I don't really put as much weight into the low interest hypothesis. Like, probably a bit of a factor, but not really the main source of our problems.

That said, people's added ability to lend has resulted in some crazy high end work driving up average square meter prices. Worked on a bike shed during COVID that cost 700 grand.

by bigtam | 11th Jun 24, 10:40am 1718059222

K.W. You are Spot on. I experienced it first hand when subdividing a few years back. The whole process is riddled with gouging and they all support each other. If everyone plays in the same paddock life is good. I had a chartered surveyor (highly recommended by the building company) telling me to just accept what council engineers and planners demand and in ONE case was going to be $10k extra cost without any technical justification and he was not prepared to challenge them. At this point I felt I was being bullied and couldn’t accept this. My moral compass was in overdrive. I made 1‘political’ phone call and email and within half a day all was resolved. I’m not sure how to change this attitude hence I’ve decided not to build.

by nigelh | 11th Jun 24, 1:38pm 1718069905

I tend towards harlows view that we need some regulation/inspection regime but not as stringent as it now is.

To give an example of regulation/council overeach. Here in NP a new single storey residential requires an isometric view on the drawings of the sewerage pipes layout. What for? If that level of detail is required then we shouldn't need fully qualified plumbers/drain layers. It begs the question what is the apprenticeship level that a qualified plumber can't work out the sewerage and grey water pipes required to get from various points in the plans to the council connection. I suspect the detail in the drawings is more for the council inspectors to inspect sewerage and grey water piping as there are no plumbing inspectors to carry out inspections.

I'm likely to have a bathroom reno done in the next year and doing the drawings myself. I shall not be submitting an isometric of the sewerage pipes from an additional toilet into the existing system. Its a few bends and some sort of Y connector into the existing pipe. Any drainlayer/plumber should be able to do it.

by 1harlow1 | 11th Jun 24, 3:55pm 1718078148

Yes exactly. Or requesting the calculations behind a structural design to review and stamp.. the person reviewing such things is in most cases not a qualified engineer. By reviewing and accepting they are taking ownership and thus liability and it then costs the rate payers when they get sued.

There still needs to be regulation, but you need to rely on the relevant professionals to design and build to those standards. Which is actually the route philosophy behind a performance based building code.

by AdamJay1990 | 11th Jun 24, 3:06pm 1718075172

I noticed when looking into a subdivision project that building costs were quite a bit more attractive than 12 months ago. I also found I could book in work with more experienced buildiners. However, the stinger has come in the increase in resource consent fees from July 1st. Some of which are increasing by 100% (deemed permitted boundary activity).