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Residential construction cost inflation was 2.7% in year to June, down from the 10.4% peak in 2022

Property / news
Residential construction cost inflation was 2.7% in year to June, down from the 10.4% peak in 2022
Building site

Residential construction costs increased by 0.6% in the second quarter (Q2) of this year, according to the Cordell Construction Cost Index, compiled by property data company Cotality.

Although that was double the 0.3% increase in Q1 this year, it was still well below the long term average of 1% cost inflation per quarter.

On an annual basis, residential construction costs increased by 2.7% in the 12 months to June this year, the highest annual growth since Q3 2023.

"At 2.7%, annual cost growth is still well below the long term average of 4.2%, and a far cry from the Covid era peak of 10.4% in late 2022 - overall, construction cost pressures remain contained," Cotality Chief Property Economist Kelvin Davidson said.

Reduced workloads in the residential construction sector had created a degree of spare capacity, which was helping to ease cost pressures, he said.

"New dwelling consents have dropped from more than 51,000 in the year to May 2022 to fewer than 34,000 now," Davidson said.

"That decline has taken the heat off both wages - which account for around 40% of Cordell Construction Cost Index - and materials costs, which represent roughly 50%."

As usual there were ups and downs in the costs of individual building products, with the cost of weatherboard cladding up 6% in Q2 this year, while decking timber and ceiling batts both declined by 1%.

"Cost movements are now being driven by specific supply and demand dynamics rather than broad based inflation," Davidson said.

"We're seeing more nuanced and patchy shifts that reflect a normalising market," he said.

However while the pace of cost growth had slowed, overall build costs remain elevated.

"Households can be more confident costs won't run away during a project, but the total cost to build remains a hurdle," Dvaidson said.

"With ample existing stock on the market, builders may still face challenges attracting new projects in the short term," he said.

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