Inflation still high
Weak demand isn’t having an effect
DESPITE THE FALL OFF in demand for new buildings, residential building cost inflation is still high. First National Bank property strategist John Loos calculates that – unlike 1997/1998, the last period of major weakness in residential property – year-onyear inflation in the average value per square metre of building completions in July was still running at 11,7% on a three-month moving average basis.
Loos says that despite very weak demand, inflation shouldn’t be too surprising, given that building input cost inflation is still believed to be considerable. From a 7,9% year-on-year nadir in January, the producer price inflation rate for building materials had increased to 13,2% by July. That reflects a resumption of building input inflationary pressures after a brief lull. “As the great fixed investment boom continues to gather momentum one shouldn’t anticipate building costs to be cheap, with residential building having to compete with the broader construction sector for certain inputs,” Loos says.
Overall, Loos says building statistics for July continued to reflect a weak picture in the residential building activity sector.