The figure is the lowest in around seven years
The New Zealand construction sector is experiencing a slowdown in annual cost growth, with the latest Cordell Construction Cost Index (CCCI) from CoreLogic recording a 0.8% increase in the fourth quarter of 2023.
Although there was a slight uptick in the growth rate compared to each of the previous three quarters (0.4%-0.6%), it still fell below the long-term average of 1.1%.
The figure also marks the lowest annual rise in construction costs in around seven years, with the annual change settling at 2.4%, well below the 10-year average of 4.5%. This was the slowest annual rise since Q3 2016 (2.2%) and the second slowest since records commenced in Q4 2013.
Kelvin Davidson (pictured above), CoreLogic chief property economist, attributed this deceleration to reduced pressures on residential construction supply chains and capacity.
“The industry itself is simply facing less pressure on overall capacity, compared to its peak at the end of 2022, where over-stretched builders struggled to keep up with workloads for new houses and renovations,” Davidson said.
“Records show material supply chains are easing further, with timber prices stabilising, and even some modest falls for metal products.”
However, there have been some price increases on general hardware, mainly imported products, he noted.
Outlook for construction cost growth in 2024
Davidson anticipates the pace of construction cost growth to remain subdued this year.
“The surge in net migration may help to restrain the pace of construction sector wage growth, which could also cap overall cost growth, considering that salaries account for 40-50% of the total cost of a new build, excluding land,” Davidson said.
“It wouldn’t be a surprise to see the annual rate of change in the CCCI run at 3-4% throughout the year, with builders still reasonably busy but not facing the intensity of recent years.”
The decline in new dwelling consents also suggests a potentially prolonged softer phase for construction activity.
“Although it's unlikely costs for households potentially looking to buy a new build or commission their own project will get any cheaper, at least costs shouldn’t be spiking higher either,” Davidson said.
Encouragingly, demand incentives, such as lower deposit requirements under LVRs, provide confidence for developers to initiate new projects, contributing to a long-term solution for housing affordability, he said.
CoreLogic’s CCCI report measures the rate of change of construction costs within the residential market for a typical three-bedroom, two-bathroom brick and tile single-storey dwelling. To access the full report, visit CoreLogic's website.
To compare the latest results from the same period last year, read this article, and from the previous quarter, read this story.
Get the hottest and freshest mortgage news delivered right into your inbox. Subscribe now to our FREE daily newsletter.
