Building costs rise at lowest rate in eight years
Home building cost increases have slowed to a level below the long-term average as workload pressure in the sector eases, CoreLogic says.
Skyrocketing construction costs during the Covid pandemic contributed to a reduction in demand for new home builds, and last week the government announced changes to the Building Act in a bid to lower building product prices.
Industry insiders said prices would not get cheaper overnight due to the changes, but that they would go down over time.
Now, CoreLogic’s latest Cordell Construction Cost Index shows home building costs stabilised in the first quarter of this year, rising by just 0.5%.
It was less than half the long-term quarterly average of 1.1%, and well below the average quarterly increases of 2% recorded in 2021 and 2022.
The cost of building a “standard” three-bedroom, two-bathroom, brick-andtile single-storey home was up 2.3% annually, according to the index.
That was a significant decline from the peak of 10.4% in the last quarter of 2022, and was the lowest rate in almost eight years.
CoreLogic chief property economist Kelvin Davidson said the normalisation of home building costs would provide more certainty for builders and consumers.
Costs had spiked during 2022 due to lingering Covid-affected supply chain issues and a boom in construction activity, he said.
Building consents peaked at a record high of 51,015 in May 2022, but the figure has been declining ever since. Stats NZ latest figures show there were 36,276 consents in the year to February.
Davidson said the slowing in home building activity, along with the normalising of supply chains, was easing the pressure on capacity and workloads, and cost growth.
The decline in new home consents suggested the softer phase of construction activity might remain in place for a reasonable period, he said.
“Normalisation of cost rates will benefit builders and consumers after unprecedented industry volatility has resulted in construction costs being 25% higher than pre-Covid levels.
“Flatter costs mean builders can price jobs more accurately, and consumers can be more confident that their final price won’t have spiralled by the time a job has been completed.”
While construction costs and the price of new builds would not get any cheaper, this year’s expected annual growth rate of 3% to 4% meant the cost to build would not spike higher either, he said.