Construction costs rising but brakes have come on
The Covid era of rapidly escalating home building costs looks to be over, but that does not mean it is getting cheaper to build.
Quotable Value (QV) has released the latest figures from its Costbuilder database, which show that the average cost of building a standard three-bedroom home in the main centres rose by 5.2% over the year to February.
That contrasted with Covid-era cost increases of 20.9% in the year to June 2022, and 9.5% in the year to June 2023.
Additionally, the average cost went up by just 0.3% over the three months to February, down from the quarterly increase of 0.9% in QV’s last CostBuilder update.
Costbuilder monitors the costs of over 8000 building components, including labour rates, and there were increases in some elemental prices, the latest figures reveal.
The cost of ceiling finishes increased by 0.7%, while the cost of structural walls and exterior walls/exterior finish were up 0.6% and 0.5%, respectively.
But CostBuilder spokesperson Martin Bisset said the rapid building cost inflation seen since the onset of Covid-19 was now firmly on the downward trend.
There were no significant reasons for the elemental increases, but some were related to a small increase in the labour rate, he said.
“Fuel costs have come down, inflation is in decline, and increased migration is helping to fill labour shortages, which is helping to keep most costs in check.”
Some costs had even decreased in the latest update, with trade rates down 0.1% overall. The cost of T&G plywood flooring panels fell by 28%, while diesel prices dropped by 4%.
Bisset said the figures were averages, and the cost of building was always dependent on the level of finishes, internal layout, and other elements, including whether a home had a single or double garage.
There was also still an abundance of economic and political uncertainty, including the Israel-Hamas conflict and the ongoing disorder on the Red Sea, that could impact construction costs in the future, he said.
Earlier this year, CoreLogic’s Cordell Construction Cost Index showed that construction costs were rising at the slowest rate in seven years.
It had costs up by 0.8% in the fourth quarter of 2023, which brought the annual change to 2.4%. That was well below the 10-year average of 4.5%, and the slowest annual increase since the third quarter of 2016 (2.2%).
But the evidence of a decline in the rate of building inflation came at a time when the construction sector was dealing with a downturn in activity.
Consents for new homes were down 25% in the year to December, according to Stats NZ’s latest figures.
And the latest National Construction Pipeline Report forecast that the value of residential activity would fall to a low of $27.1 billion in 2026-27, down from a peak of $33.8b in 2022. It would then rise to $28.4b in late 2028, a level still below the 2019 level of $31.8b.
Meanwhile, the new Government wants to help reduce the high costs of building a home by streamlining the consent process and allowing more overseas products on to the market.