Find out what's behind the increase
New Zealand’s construction costs saw a modest 1.1% increase in the September quarter, according to CoreLogic’s latest Cordell Construction Cost Index (CCCI).
This marks the first time quarterly growth has surpassed 1% since December 2022. However, annual growth remains low at 1.3%, well below the long-term average of 4.3%.
Easing pressure on labour and materials
CoreLogic’s chief property economist Kelvin Davidson (pictured above) explained that despite the recent quarterly rise, overall construction cost growth remains subdued due to reduced pressure on labour and materials.
“The wider residential construction sector has been in a downturn for about two years now, with dwelling consents falling and workloads declining,” Davidson said.
While some materials like PVC piping saw price drops, others, such as kitchen joinery, experienced slight increases.
Industry grapples with high property stock and tax changes
With 26,000 properties currently listed for sale, up from 23,000 last year, the high volume of available existing homes is dampening demand for new builds.
“There’s less incentive for buyers to consider new-build properties,” Davidson said, attributing this to the abundant stock and recent tax changes, including the shortening of the Brightline Test and the reinstatement of mortgage interest deductibility for all properties.
Declining consents and construction workloads
Annual dwelling consents have fallen sharply, down 34% since their peak of 51,000 in May 2022. Actual construction workloads have also dropped by 15% from their peak.
However, Davidson noted potential for recovery, citing the Reserve Bank’s new debt-to-income ratio restrictions, which exempt new builds, as a possible stimulant for future demand.
Outlook for the sector could improve
While the short-term outlook for New Zealand’s construction sector remains subdued, Davidson pointed to potential growth as interest rates fall and labour market conditions improve.
“Developers may feel more confident to increase supply if these changes, combined with falling mortgage rates, create a shift in demand toward new builds over the next 12 to 18 months,” he said, suggesting a possible resurgence in construction activity by 2025.
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