This is on top of sky-high house prices
If you think soaring house prices would stop your clients from buying a new home, wait until they find out how much building materials cost! And that's why the New Zealand Government has decided to review the residential building supply market.
In a recent announcement, Minister of Commerce and Consumer Affairs David Clark emphasised the significance of understanding any market barriers that could play a role in supporting Kiwis in achieving homeownership, which is why the government is “looking at how we can lay the foundations for a more competitive building sector.”
The review will enable the Commerce Commission to investigate any factors that might affect competition for the supply or acquisition of key building supplies, including the foundation, flooring, roof, walls, and insulation.
“There have been long-standing concerns about potential competition issues, particularly due to the highly concentrated nature of some markets in the supply chain,” Clark said.
He further explained that good housing underpins a range of social, economic, and health outcomes. Therefore, the government found it crucial to help Kiwis access fairly priced building supplies, noting that a significant portion of costs related to building homes is tied to building supplies.
“As New Zealand's population has increased over the last decade, residential building consents have more than tripled. Alongside that, current demand for renovations and extensions to existing homes is at the highest it's been in 15 years,” he said.
The Commerce Commission will present its final report on residential building supplies in December 2022.
Read more: QV: Average house price exceeds $1 million for the first time
Entering the residential property market has been difficult for a while now, especially when the COVID-19 pandemic led to multiple lockdowns.
During the past three months to October 2021, the national average residential property value exceeded $1 million for the first time – a 5.3% increase, up from the 3.6% quarterly growth in September, with the national average value now sitting at $1,002,153, according to Quotable Value (QV).
However, in the latest Westpac Economic Review, Westpac economists expect house price growth to slow down in the coming months, turning to moderate price declines by late 2022 – adding that higher interest rates, rather than supply-side issues, would have a more significant impact on house prices.
“As mortgage rates rise, we expect to see a substantial slowing in house price growth over the coming months, turning to modest price declines by the second half of 2022,” said Westpac acting chief economist Michael Gordon in a previous statement. “Even then, the recent rate of increase has been so dramatic that, on our forecasts, it could take a few years just to get house prices back to where they were at the start of this year.”
