Fiscal restraint slows home renovations
Renovation experts tell Miriam Bell there is a correlation between the rise in the official cash rate and the pullback in demand seen in the industry.
Rising interest rates and the cost of living crisis are putting the brakes on homeowners’ renovations, Builderscrack says.
The tradie job platform has reported a decline in demand for tradespeople in the ‘‘homeowner-managed projects’’ space.
The biggest pullback was in the ‘‘discretionary improvement’’ space, which included renovations and home extensions, putting in pools and outdoor improvements, and garage and shed builds.
Some of this type of activity was captured in consents data, and the latest annual consents figures show they remained at near record levels in September.
But builderscrack.co.nz spokesman Jeremy Gray said consent figures were laggy by nature, and that his company’s data painted a different picture.
It had an index that measured tradie demand in real-time, and it showed that after a period of extreme pressure, demand was settling back to pre-covid levels, he said.
‘‘Demand peaked in November last year, and began to decline in January and, in our data, we are now back into what we call ‘balanced supply and demand’.’’
The index showed that in August demand dipped just below the historical average.
Gray said that, additionally, comparing job costs from October 2020 to September 2021 to costs from October last year to September showed the average costs of the jobs being undertaken had fallen.
Averaged out across all types of trades, the total cost of jobs undertaken was down 14%, but when looking at specific trades the costs of some jobs fell significantly.
Renovation jobs costs were down 46%, while insulation, roofing, and joinery job costs dropped by 29%, 11% and 10% respectively.
But the cost of other jobs, including earthworks, plumbing, painting and tiling were up, by 6%, 10%, 15% and 34%.
Gray said the cost decreases were interesting because they suggested that while material and labour costs continued to increase, people were finding ways to save money on jobs by scaling back.
The pullback in demand and expenditure was strongly correlated with the increases in the official cash rate, he said.
‘‘It’s natural and not surprising, but the speed of the OCR increase is unprecedented, and has left people feeling wary.
‘‘A lot of renovation work is done with debt, and people don’t have confidence that the money they borrow will be at an interest rate that stays the same.’’
When the OCR stabilised, people would gain the confidence to start on renovation and home improvement projects again, he said.
‘‘Conversely, it is actually a good time for people who have the funds, and have put off jobs due to difficulties finding tradies, to get started on those jobs.’’
Renovation expert Jen Jones, from Nine Yards Consulting, said demand for renovations had definitely slowed, and there were fewer new inquiries generally.
But also people who had been actively thinking about projects were now not starting them, while people who had projects underway were scaling them back, she said.
That meant they might renovate their kitchen but not their bathroom as well, or they might cut back on the size of the project they had planned, or its finish.
‘‘It’s all about keeping the costs down. Lots of people who had discretionary funds for home improvement jobs don’t now, because that money is being eaten up by extra mortgage payments, or petrol and grocery costs.’’
Rising interest rates were doing their job, and slowing the market down, but it would take a while for people to return once they stabilised, she said.
‘‘It will probably take a couple of years to heat up again as many people will sit back and wait to see what happens before they commit to doing anything significant.’’
Interest in her company’s DIY resources and courses had increased though, so people were using the time to upskill and plan future projects, Jones said.
‘‘People are also looking for advice on what type of work triggers a building consent, and what you can do that doesn’t require a consent.
‘‘The consent process can eat up 15% to 20% of a renovation budget, so if it is possible to avoid it, it is another way to scale back the cost.’’
‘‘A lot of renovation work is done with debt, and people don’t have confidence that the money they borrow will be at an interest rate that stays the same.’’
Jeremy Gray, above
Builderscrack spokesman
‘‘Lots of people who had discretionary funds for home improvement jobs don’t now, because that money is being eaten up by extra mortgage payments, or petrol and grocery costs.’’
Jen Jones, above
Renovation expert