Annual cost growth is now below the 10-year average
The New Zealand construction industry has entered a more subdued phase, with the annual cost growth sharply falling to 3.4%, from a peak of 10.4% in late 2022, reflecting the marked easing in materials supply chains, the latest Cordell Construction Cost Index (CCCI) showed.
In the September quarter, construction costs lifted 0.5%, slightly down from the 0.6% recorded in the first six months of the year, and the lowest figure reported since Q4 2020.
Kelvin Davidson (pictured above), CoreLogic chief property economist, said the annual index figure of 3.4% is now below the 10-year average of 4.5%.
“New dwelling consents remain elevated with more than 40,000 on a 12-month rolling basis,” Davidson said. “This is keeping builders still relatively busy working through a pipeline of previously approved dwellings as well as a continued stream of work on alterations and additions.
“Although building capacity pressures have eased, half of project costs stem from labour and continued growth in wages is keeping some pressure on overall construction costs.”
He said a fair proportion of building components prices remained flat across the September quarter, with scattered rises and falls across metal and timber materials.
The CoreLogic economist predicted new dwelling consent volumes to drop further, with workloads and construction costs continuing to moderate over the next two to three years.
“It wouldn’t be a surprise to see the quarterly rate of change in the CCCI continue in the vicinity of 0.5% for the next few quarters,” Davidson said. “While new builds probably won’t get cheaper, a controlled annual growth rate of 2-3% gives confidence for buyers to invest and for developers to keep bringing projects forward.”
The CCCI report measures the rate of change of construction costs within the residential market for a “standard” three-bedroom, two-bathroom brick-and-tile single-storey home. To read the report, click here.
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