The rush to satisfy the long-term pent-up demand for housing is seeing construction costs blow out for all new builds, accentuated by a natural focus on top-end, high-spec opportunities

The rush to satisfy the long-term pent-up demand for housing is seeing construction costs blow out for all new builds, accentuated by a natural focus on top-end, high-spec opportunities

New Zealanders have stopped buying bigger new houses.

In fact, based on housing consent data, houses built in 2016 are 5% smaller than those built in 2006.

However they are 40% larger than those built 25 years ago.

House sizes grew until 2006 - when we called them McMansions - and then the bloat stopped. However it has not shrunk back much since then.

Nationally, on average, our new houses are now 218 square metres (about 2,350 square feet).

In Auckland, they are even larger at 233 square metres (about 2,510 square feet) up about 7% compared to the national average

Perhaps a reason the size has stopped growing is that the cost of construction has not.

Twenty five years ago, the cost to build was $687 per square metre. By 2006, that had risen to $1,096 per square metre. Today, that national average level has risen to almost $1,800 per square metre.

Using the Reserve Bank inflation calculator, that shows those numbers in inflation-adjusted terms, house construction costs have risen 65% per square metre over the past 25 years in real terms, and are up 34%/per square metre in real terms in the past 10 years.

The data for Auckland are similar. In real terms the rises for the Queen City are +56%/square metre in 25 years and +33%/square metre in the past 10 years.

The data for Christchurch is interesting too because it straddles the earthquake recovery period.

For the Garden City, the rises in real terms are +80%l/square metre real in 25 years, +44%/square metre in the past 10 years.

The sudden demand has pushed average construction costs in Christchurch to $1,884 per square metre, and they are now higher than the Auckland 2016 average of $1,816 per square metre.

Most of the focus around the current housing bubble is on the dramatic rises in land prices. But new supply may also be being constrained somewhat by these eye-watering jumps in construction costs.

And the increases are not just limited to houses.

The costs for building apartments is even more eye-watering and actually more expensive on a per square metre basis than for houses, even if each unit is smaller.

The average apartment size rose from 104 square metres in 1991 to 108 square metres in 2006 to 113 square metres today.

But over the same time, the average cost to build benchmarks have risen from 763/square metre in 1991 to $1,590/square metre in 2006 to $2,857/square metre today.

In inflation-adjusted terms, that is a real increase of 138% over 25 years, and +47% in the past 10 years.

It gets 'worse' in Auckland.

Today it is costing a remarkable $3,082/square metre to build an apartment unit, one that averages just 123 square metres.

In inflation-adjusted terms that is 136% higher than 25 years ago, but more worrying it is up 118% in real terms in just the past 10 years.

Higher spec apartments will be a big part of this shift.

Developers are facing rising demand from boomers who are downsizing and they want high-spec alternatives.

Given there are growing construction capacity constraints, why would any developer want to build lower-priced entry level units for buyers desperate for accommodation.

That constraint will be equally true for building 'normal' multi-unit rental accommodation.

Renters may be being sidelined into existing-builds that lose their attractiveness for home-buyers. Given the level of demand, the supply responses will not be focusing anywhere but the top end until that demand is satisfied.

If you have read this far, you should know that all the above data is based on building consent figures.

As anyone who has filed a building consent knows, the actual project rarely comes in at those cost levels - its always an experience where you end up spending considerably more.

So the real figures will probably be worse than those outlined above.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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ANZ comment in my mailbox:
The construction sector is one of the key reasons for New Zealand’s decent rate of economic momentum at present. We expect that to continue despite a peak in the Canterbury earthquake rebuild. However, if we have any concerns they are over the sector’s ability to continue to maintain strong growth given signs that capacity and resource pressures are already starting to emerge.

Are past deflationary impulses supporting bank economists' demands for perpetually lower funding costs about to be extinguished?

Wow, those costs/m2 look cheap.
In Queenstown a neighbor received tenders for their shadowclad garage - $2500/m2!!!!!!! It is just a double garage, concrete floor on a flat site.
The range of building costs are considerable. Code minimum (entry level) houses can be built for $2050/m2 for a 200m2 house (still a $410,000 build cost Plus driveway plus landscaping plus decks plus land at $250,000 if you can get it).
Then there are the more energy efficient - $4000/m2 and upwards.
Take your pick.

You might want to tell him to call A1 Homes...

12
up

Let's spin the well-scratched record once again. Here's a sample of reasons (none of which existed 15 years ago) for the per-square cost explosion:

  • Building material prices are in the steel vice-grip of a cosy duopoly, so materials alone are much more expensive than they need be. A quick Google of Bunnings, the co.nz and the com.au, should serve to convince the unbelievers. Solution: Get Oz' ACCC over here and let 'em loose.
  • The LBP mania rules out self-builds, sweat-equity and other self-help possibilities. Time was when anyone could build their own. Norman Kirk did. No more. Solution: being as how most LBP's were certified with a write-in form attached in trade mags at the time, just ditch it, and use real-life, dynamic tests on selected parts of structures (see below) - a WOF, if you will. An LBP'ed member of Der Whanau got his cert via two phone questions from MBIE and an application form.
  • TLA 'contributions' can be measured at close to $100K per dwelling, for all manner of things, on a take-it-or-leave-it basis. A natural monopoly, completely unregulated...Solution: ACCC again, and central government regulation of the avaricious Councils.
  • Elfin Safety adds $5-10K layers at every turn: for such innovations as scaff, fall protection, site meetings, inspections, certifications of scaff and electrical cords and tools, Most completely unknown (and, arguably unnecessary) 15 years ago. Ask older tradies (who have, sensibly, quietly faded into the shadows or gone under the radar)
  • Building inspections and other regulation is mainly concerned with liability avoidance, not actual structural assessment. Witness the mountain of Producer Statements for every bracket, beam, bolt, fitting and component. Easy to count and file to get the ticks, very little relationship to (say) the performance of the structure in a severe earthquake. There's little to no dynamic testing (e.g. exerting a 0.5 tonne upwards force on a purlin to test security in a gale or pushing a corner of a building sideways with a known pressure) All cost, close to zero benefit. Solution: dynamically test structures (bag of cement and a steel beam to exert leverage), and a micrometer to measure the give in those purlins them hammer-hands threw up.
  • Few builders exceed 100 units per year, and most is done outside, in the weather, with close to zero QC, by indifferently skilled hammer hands (drug-tested, if you're lucky). Contrast that to the build regime for boats, aircraft, caravans and portable structures: indoors, CNC everywhere, tight QC, tight tolerances, done in volume and serial-numbered/guaranteed. Spot the difference? Check a local build, and count the weeks the frame stands outside, unprotected, in the rain...Solution: factory builds, jump started by Gubmint contracts for thousands of social housing units to get volumes through those plants. And throw in real QC from international accreditation firms (Yellow Pages)

Common taters may care to add their own items to this little list.

Spot on...

Way too much practical thought in some of that Waymad. I believe you are still able to build a house for yourself, however there are reams of paper hoops to jump through first.

With time, not just some particular stuffs but all the aspects are getting raise in their cost and building and apartments are at the top position. From the past few years the cost of land or house have increased a price of double or even triple. So as the maintenance would also be tough. You have presented a clear and practical data, and I appreciate that you have worked a lot on it. Thanks for posting. Apartment Property Management High Point, NC.

Please read the following article and spread in all sovial media and support http://m.nzherald.co.nz/property/news/article.cfm?c_id=8&objectid=11649873

Why open up more residential land for more overseas-originated buyers?
.
Be very careful selling your house now, as you may not be able to afford to buy another property.

I know a fair few here in tga that have sold and have been unable to find a rental or a house to buy back into forcing them to move out to the perifery like te puke...

extracts from that NZ Herald article

Lawyers give an example of an overseas investor purchasing 55 residential properties in a single week

and

They are consistently seeing a large proportion of Special Housing Area (SHA) houses being sold, off the plans, to overseas investors

and

The Government's reluctance to act might be due to the contribution that overseas investment makes to the economy, the lawyers said

So the NZ Govt is keen to open up more residential land and housing for foreign-related buyers.
This is related to 'Free Trade" Agreements or globalisation ideology, or 'anything to get new money flowing into NZ'? There must be a rationale for this strategy. Surely?

DC, I've received a commentary on the NPS from a top environment lawyer. I'll check as to the publicity possible.

Need of the hour is expose the inaction of government and are so arrogant that they feel they have sucessfuly managed to pass the blame on council n supply instead of taking some immediate action though will not be silver bullet but so is supply only as it will take few years and is giving enough time to speculators to play. Fail to understand that enough damage has been done still the government is supporting the speculstors as if 2 bedroom unit for a million dollar is not enough. They have to be exposed and shamed

This is the only ecenomy that is doing well n for that reason government is doing nothing to control the speculation for if it burst the myth that NZ is doing vey well will burst. It will burst but government is trying to hold it till next election so anyone wanting to do major renovation may wait.