This as construction material crisis eases
Building a residential home in New Zealand is getting more expensive, but the pace of growth has started to slow down for the first time in more than two years.
In the March quarter, construction costs increased 0.6%, well below the average quarterly rises of 2% recorded in 2021 and 2022, while the annual growth rate slipped from a record high of 10.5% to 8.5% in the three months to March, the latest Cordell Construction Cost Index (CCCI) showed.
Kelvin Davidson (pictured above), CoreLogic chief property economist, said the worst of the construction materials crisis was over and that rising interest rates have led to a drop in the number of new homes being consented, which would also contribute to an easing on demand pressures.
“Availability of important materials such as plasterboard has improved, timber prices have also stabilised to some degree, especially structural timber,” he said. “Metal components are showing a similarly flatter trend for prices too.
“The pipeline of housing that’s already been approved remains large – and will keep builders busy for a while yet – so the slowing influence on actual output volumes and construction cost growth may take a while to show through clearly. But the early signs have definitely arrived.”
Davidson said it was difficult to judge how construction costs might evolve this year, particularly with fewer houses to build in the short term. He expected the post-cyclone rebuild to push up construction costs as resources are redirected to that work.
Despite easing inflation numbers, Davidson ruled out the prospect of a decline in construction costs.
“The longer-term trend certainly points to a continued slowdown in cost inflation as new-build workloads ease into 2024 and capacity pressures become less acute,” he said. “People considering the new-build path are unlikely to see the costs drop to any great degree. The hope has to be that this slowdown in construction sector output doesn’t turn out to be dramatic.
“Encouragingly, demand incentives such as tax advantages for people to invest in new-build properties should give developers some degree of confidence to keep bringing forward new projects.”
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