Building costs up over 30% in past 10 years

Property

Latest QV Costbuilder report shows average cost of building a home in the main centres rose 3.4% in the year to April; Christchurch followed by Auckland are the most expensive places to build

20th Jun 18, 1:20pm by David Hargreaves

The cost of building a house in the main centres has now risen by over 30% in the past 10 years, according to the latest figures from QV Costbuilder.

And prices have continued to rise over the past year, although there is a reasonable degree of variation in the rise depending on size of the house being constructed.

QV Costbuilder is an arm of state-owned enterprise, Quotable Value (QV) and provides the latest construction cost data to the property and construction industries through an online subscription web platform tool.

The latest QV Costbuilder six-monthly report shows the average cost of building a new home in six of New Zealand’s main centres rose on average by 3.4% in the year to April 2018 and has risen 30.7% since the previous peak of 2007.

The company said this rate of increase is faster than the annual rise of 2.7% in the year to October 2017 but is slightly slower than the annual rate of 3.5% to April 2017.

The report breaks down various costs of building a variety of different sized houses.

The latest data shows the average cost of building a standard 140m², three bedroom, one bathroom home increased by the most in Auckland in the year to April 2018, with the costs rising by 2.9%. This is the breakdown of the costs in the main centres:

Auckland costs increased 2.9% to an average cost of $281,750;
Dunedin costs increased 2.8% to $261,625;
Waikato costs increased 2.7% to $266,875;
Christchurch costs increased 2.2% to $285,250;
Wellington costs increased 1.7% to $264,250; and
Palmerston North costs increased 1.4% to $259,875.

QV Costbuilder said the greatest cost increase has come for a 150m², three or four bed, one or two bath home, which increased by around 4.7% for all regions, with Auckland and Christchurch increasing the most, as below:

Auckland costs increased 5.7%, rising to an average cost of $310,315;
Christchurch costs increased 5.7%, to $311,250;
Dunedin costs increased 4.9% to $282,190;
Waikato costs increased 4.4% to $289,690;
Palmerston North costs increased 3.8% to $282,190; and
Wellington costs increased 3.4% to $285,940.

QV Costbuilder spokesperson Greg Thompson said it was important to remember that the figures are averages. "The cost of building any home will always be dependent on the level of finishes, internal layout, and whether it has a single or double garage.”

Not included in the QV Costbuilder figures are things such as:

The cost of land
Demolition of existing structures on the site
Additional costs due to building code changes
Increased structural requirements and external works such as landscaping, driveways and parking areas
Utilities such as getting power, water, gas, drainage, phone/data mains from public connection to 3 metres from the building
Balconies and covered ways
Any loose furniture, fittings and equipment
Professional, council, and legal fees
GST

Thompson noted that Rider Levett Bucknall (a leading independent organisation in cost management and quantity surveying) had released their latest quarterly report (Forecast Report 87, New Zealand Trends in Property and Construction, Second Quarter 2018) and a number of items stand out in this:

Acute labour shortages, particularly for skilled workers, are still apparent within the construction industry although migrants have helped ease shortages;
Underlying construction demand remains strong, but capacity constraints continue to hamper the degree to which construction activity can ramp up;
Expect further growth in demand for apartments and townhouses over the coming years, particularly given the Government’s plans to underwrite financing of housing developments as part of its Kiwibuild programme to build 100,000 dwellings over the next decade;
Fletcher Building’s exit from the sector is putting upward pressure on construction costs;
Construction should be solid for the next few years, as house-building activity lifts to meet increased demand from the surge in population in recent years.

"Finally, RLB forecast that construction cost inflation will peak at just below 5% before moderating to 4% by late 2019 and then ease to around 3.5% in late 2020, as capacity pressures in the construction sector eases," Thompson said.

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33 Comments

by Averageman | 20th Jun 18, 2:02pm 1529460147

End of the day chippies, sparkies and material suppliers all want to buy a house as well. Allow rampant domestic and foreign speculation driving up housing prices and what do you expect. Add in the earthquake repair sucking up resource Im just surprised that its not higher.

by J.C. | 20th Jun 18, 2:10pm 1529460614

Let's face it. Most NZers' ability to generate income and to access funding (until very recently anyway) is not commensurate with the costs of new housing.

by ShoreThing | 20th Jun 18, 2:20pm 1529461200

This is higher than the rate of CPI inflation, which incomes are theoretically meant to track, but much lower than the rate of house price increases over the same period. What does this say about claims that houses are becoming unaffordable due to increasing build costs? Looks like the cost of housing and the price of housing has decoupled a long time ago.

by Grendel | 20th Jun 18, 2:42pm 1529462555

I agree with you comment overall that house prices have basically been decoupled form everything. But the building cost argument has only ever been part of the equation as the cost of land in our major cities and especially Auckland will out weight the cost of construction. Its the land that has been decouple and for developers it is a fixed cost.

This is why we have all the RMA/Compliance/Unitary Plan complaints on here and the reason for all the $2.5m to $5m McMansions on 600sm cross leases sections. The incentive is to put the most rooms on the land as possible because that is were developers make there premium.

by Bobster | 20th Jun 18, 2:46pm 1529462789

Current prices principally reflect increases in the price of land, which in turn reflect the growth of mortgage credit. We have a credit bubble which has led to a real estate bubble. It’s the price of land which is the main issue, not build costs.

by JimboJones | 20th Jun 18, 2:51pm 1529463078

The cost of building affects the cost of land though. For example if I could demolish my house and replace it with 4 houses at a reasonable price I might do it. That would effectively make the land 1/4 of the price per section. But building costs are so high that it doesn't make sense to do it, hence it will stay as one house and one expensive section.

by nymad | 20th Jun 18, 3:35pm 1529465701

Wrong.
The cost of building doesn't affect the cost of land - how could it?
The cost of land is rooted in the amenity value associated to it. Cost of development of land is then capitalised into land price. Don't confuse those two.

As for the rest, it is a bit more complex than how you describe it. Yes land value would be decreasing at the margin, but because amenity value accounts for such little of a proportion of extensive land value, you couldn't simply say that 4 houses equals a quarter of the price.

by Grendel | 21st Jun 18, 9:10am 1529529041

Thanks for explaining that to Jumbo so succinctly.

The only other thing that I should point out was my example of a crossed leased 600spm section here in Auckland, I suspect there would be a lot of issues trying to build 4 townhouses on the 300sqm available.

by Eco Bird | 20th Jun 18, 2:28pm 1529461727

I am pretty sure that the above numbers are quite modest and the reality is dearer than these percentages.

I know for fact that the cost of just building a two story, 260m2 house with the same quality and material has increased from $295K in 2000 to anywhere between $825 - $880K today - this includes council fees and contributions ~ $100K which virtually did not exist at that time. So on AVERAGE it is about 10% pa over the last 18 years.

Some people here wonder why house prices should appreciate relative to the cost of replacement , building, renovation, and maintenance at a min rate of 5% pa in Auckland

A small job of 2-3 hours work which requires a certified tradesman costs at least two weeks take home pay on average wage ... and don't get me started on material costs !

So the noises and concerns we hear today about the quality of KB at $650K are very true and the concerns about the quality are very serious and valid. FHBs will buy a lemon and keep spending their guts over the coming years to bring it to shape ( cheap building means high maintenance costs in future).

by JimboJones | 20th Jun 18, 2:53pm 1529463197

To be fair almost everything built in 2000 was made by children from cardboard and untreated timber

by RickStrauss | 20th Jun 18, 4:44pm 1529469880

HardiLeak

by Chessmaster | 20th Jun 18, 2:55pm 1529463341

Agree eco bird. The real numbers are much higher than this. I have just been through a build process over the last 2 years. $4k sqm is the new norm and just just keeps adding from there. Also renovation costs are horrendous, not surprising renovated existing build houses selling for a premium. This will not change in the near future.

by NorthernLights | 20th Jun 18, 4:01pm 1529467266

Eco Birdie
Nice to take a break from political stress here a cliff of insanity with Trump caging babies & toddlers
The Super City doesn’t charge a simple 1.5% land/property transfer tax on every sale so it must find other ways to fund itself & infrastructure so what better than load the burden onto new housing development
The whole taxation structure is wrong in Auckland and hence these anomalies will continue
Basically the wealthier suburbs are not paying anything like the property tax I pay here
Political expediency means there will be no real change to property taxation in Auckland so expect new building to take the hit.
How’s that second harbour bridge coming along ?
$5Billion debt and rising Auckland super city Thank heaven for the Chinese government investment in infrastructure Auckland ....its coming soon

by JimboJones | 20th Jun 18, 2:47pm 1529462830

So $324k inc GST to build a 3 bed 1 bath home in Auckland. Then add on connections, drainage, council, architect, engineer, driveways, landscaping, decking, fencing, developer contributions, etc - probably more like $400k. Land probably in the region of $500k (depending on where it is and how big). All up $900k to build a small 3 bed 1 bath house in Auckland .

by Eco Bird | 20th Jun 18, 5:18pm 1529471912

Absolutely JJ, ... But, no one today would waste that section and put a 3 bdrm 100-120m2 house on it as in your example above, they will build at least 200m2, 4bde, 2 bath double garage to build in Value in that property, otherwise the above $400K will be wasted.

Mind you ... Auckland new home builders ( both private and building companies) are maximising the sizes of the built area right to the limits allowed on that section (i.e. more like 250 - 350 m2. even if they didn't currently need half of that to live in .... it is a huge investment for the future and added value to the improvement of the section. building extensions later will be nightmares no one would dare thinking of.

by J.C. | 20th Jun 18, 3:12pm 1529464357

I can actually read and understand what you're trying to express.

Well done!

by saving_for_aus… | 20th Jun 18, 3:06pm 1529463982

So instead of burning some red tape and fees, labour decides that we need to fix this government created mess is... a government program?

FFS, people want houses, let people build them!

by J.C. | 20th Jun 18, 3:14pm 1529464451

FFS, people want houses, let people build them!

People, machines and technology. That will help the provision of affordable housing.

by nymad | 20th Jun 18, 3:19pm 1529464793

People, machines and technology

The impact from that will be minimal in relative terms.
The lack of provision of housing in Auckland isn't rooted in labour or capital, but regulation.

by kiwi_overseas | 20th Jun 18, 3:38pm 1529465918

The median household income is around 85,600 in 2017 - https://figure.nz/chart/yiJz6VUr64vQ68Du

That puts the price of the standard 140m², three bedroom, one bathroom home (before land and all other costs) at roughly a median multiple of 3.3 (281k / 85.6k)

14th Annual Demographia International Housing Affordability Survey: 2018 (https://fcpp.org/wp-content/uploads/dhi2018-fcpp.pdf) puts the total median multiple at 8.8

That means all the other costs including land make up roughly 5.5 (8.8-3.3) or 62.5% of the costs

by Eco Bird | 20th Jun 18, 4:04pm 1529467458

And in practice, that is spot on in Auckland ... new sections 650 - 850+K house building cost ( incl) 400 - 650K .... same formula almost every where new stand alone houses are built .... obviously , terrace houses, attached town houses, and apartments are different and they are case by case

by tothepoint - d… | 20th Jun 18, 4:05pm 1529467506

One pays through the nose for new building in NZ. But the quality is often mediocre - to say the least.

I think it’s often better to buy an old building made of better quality materials (eg timber weather boards) - and refurbish.

TTP

by Eco Bird | 20th Jun 18, 4:23pm 1529468607

Hi TTP,

Depends on where you buy, but generally disagree mate .... I did 3 of these in the last 3 years and just finishing the last one.

You then realise that buying new is cheaper, modern, spacious with capital investment and new chattels to suit bigger areas etc... Also, you will most likely open a can of worms really when you get into anything more than painting an old house. Bones are ok in general , but finishing sucks and even weatherboards and roofs rot beyond economical repair.

You can give the pig a makeup but it will remain a pig and You could pay heaps more through the nose for that exercise

However, the reverse is true if you are renovating in the leafy suburbs of Auckland where the value is pinned to Land and location. You can easily spend millions to keep up with the Jones ..:)

by tothepoint - d… | 20th Jun 18, 5:42pm 1529473338

Fair enough, Eco Bird.

You've obviously had more experience than me.

Have to say, however, that I've seen a few renovations/refurbishments of very old homes - and they've turned out magnificent. Anything but pigs.

Cheers,

TTP

by Eco Bird | 20th Jun 18, 7:53pm 1529481212

Agreed, that is what my projects look anything but the pigs they were now ... fabulous modern house in an old but renovated shell, But at what cost my friend ?.

Obviously depends how good the original house condition is ... but most old houses in Auckland are quite tired and its makes more sense to demolish and start from scratch .. unless it is a historic Villa or a character House worth the money

Building codes in the 1960 and 70 were quite relaxed compared to today ....even those which were built with passion and care need an overhaul after exceeding used by dates. once you dig under carpets and flooring or decide to changing dated wallpapers and bathrooms , All hell break loose ...

the worst thing is to do a half pissed job in renovation, it will cost twice as much later. and almost everything needs to be modernised , cannot get away with any old stuff because it will show..

by pacifica | 21st Jun 18, 12:33am 1529497988

I agree with you Ecobird, look below the skin and there can be dodgy wiring, insubstantial plumbing, asbestos, poor degraded insulation, patches and bogs, dodgy diy, poor room dimensions for door & modern beds, single vane windows with rotten frames, borer, mummified rodents etc, etc. In fact you are in luck if someone has been keeping up with the small upgrades & painting. Otherwise you might as well be stripping it back to the bones anyway.

by Eco Bird | 21st Jun 18, 4:45am 1529513129

Indeed ... Tell me about it, All that is true and then some .. an absolute nightmare and the cost just escalates.

It is as much fun as having nice strong cocktails on a cold day, but once you have few all the fun goes with the hangover :)

One essential tip though, Never attempt such a project if you don't have a good team of tradies, a healthy and well planned budget ( with 30-40% contingency funds ) or if you don't have above basic skills and experience in project management of similar work ... the devil is in the detail and honestly, there are tons of details.

by Te Kooti | 20th Jun 18, 4:07pm 1529467653

The RBNZ is mandated to keep aggregate inflation between 1% & 3% and 30% annualised over 10 years is 2.65%. In fact, if building costs had risen any less it's likely the cash rate would be lower as inflation has been below target for some time.

by bilbo | 20th Jun 18, 4:17pm 1529468247

Materials aside the type of housing we build is wrong.

When you start with a huge fixed land cost you're not going to build a small/cheap house on it and covenants usually forbid cheap housing. Add in your fixed costs for mandatory utilities, consent, safety, design and so on. It certainly doesn't make sense to build a small house.

Now you've got a large expensive house you have to bring in white collar crowd to manage the financial risk: bankers, quantity surveyors, lawyers, valuers, structural engineers, insurance etc.

People should be able to build what they like with councils only enforcing basic rules like shadow planes and not forcing people onto their rort utilities. The tiny house people have managed to get around a lot of these stupid regulations but most people don't want to live in 20sqm boxes. But this is closer to what we should be aiming for; pre-consented 2-3 bedroom kit-set/prefabs that don't require a lifetime mortgage.

You know, the pre-fabs Phil Twyford used to talk about a year ago. Suddenly he's gone silent. I wonder if ANZ or Fletchers attended Labour's fund raising dinner.

by waymad | 20th Jun 18, 4:57pm 1529470676

PT may indeed have found a horse's head in his bed but it's more likely to be a realisation that to get anything done he would have to singlehandedly:

Take on the Goffster and the hundreds of AC plannerz who have foobarred the Awkland build context
Take on BRANZ and the other layers of effectively useless jobsworths and their organisations - import AUS and ISO standards
Return the RMA to its original effects-based roots and gut every TLA Plan in the nation
Create or enable/finance/guarantee housing factories (employing suddenly disestablished Plannerz, for preference) to produce consent-proof, weathertight, modular houses by the thousands
Take on and trust-bust the Materials Duopoly - Flethchers and Carters

Unless all or most of the above can be done together or at least in a tight sequence, the building side of the equation will remain status quo ante.

And little to none of the above will bring down land prices to any reasonable figure (say, the Christchurch range which runs $150-350K), so anything built on top is compromised immediately.

That's why PT is speechless. To be fair, so would anyone be.

by pacifica | 21st Jun 18, 12:37am 1529498244

Actually this is where you don't want him to be speechless. It would be great to hear his approach and opinions on these matters, if only there was a vehicle to hear him discuss it without the mudslinging muppets.

by bilbo | 21st Jun 18, 8:13am 1529525631

You make a good point. Pricing is based on maximum extortion in NZ. So if Phil solves the land problem other costs such as building materials will increase and vice versa.

by Roger Witherspoon | 21st Jun 18, 7:36am 1529523400

Let me see now, 30% over ten years equals 2.1% per annum compounded. Pretty much bang on target, the RBNZ should be very, very, pleased. The rest of us not so much perhaps.

The point I am trying to make, in case anyone missed it, is that our very clever and talented, responsible and hard working (I'm not being sarcastic) people nominally in charge of the value of our New Zealand Dollars have engineered exactly the outcome they were aiming for. So why is this shocking? Surely, if they are right, we should be applauding? I suspect because it is a misguided but intellectually appealling strategy that the bods at the RBNZ have been following. I suspect they may have been sold a lie and encouraged to believe in impossible things (such as inflation is a Very Good Thing for everyone, not just bankers, perhaps).

Bankers rule.