First decline in over a decade
New Zealand’s residential construction industry recorded its first cost decline in over a decade, with the Cordell Construction Cost Index (CCCI) revealing a 1.1% decrease in the three months to June.
This marks a significant milestone, as the cost to build a standard house had been rising since 2012.
“The downturn in workloads in the construction sector has eased the pressure on capacity and that’s flowed through to reduced building costs,” said Kelvin Davidson (pictured above), CoreLogic chief property economist.
Davidson attributed the fall to the completion of a surge in building consents and the resolution of COVID-19 supply chain disruptions.
Material costs and wage growth slow
The CCCI recorded drops in key materials, including structural steel and kitchen joinery. Tapware and electrical light fixtures also saw cost reductions.
“Coupled with a slowdown in the growth of average hourly wage rates, the flattening of building materials costs has also caused a reversal in trends from the rapid growth in construction costs in the past few years,” Davidson said.
Established properties lower new-build demand
The availability of established properties is likely reducing demand for new builds.
“Elevated stock levels among existing property listings mean fewer households are going down the new-build path. It’s also possible the higher cost of a new-build compared to an established property could also be a deterrent, especially when general household finances are tight,” Davidson said.
Subdued activity and future prospects
Davidson suggested that the forecast for softer new dwelling consents and subdued house-building activity might lead to flat or further falls in construction costs in the next few quarters.
New debt-to-income rules introduced by the RBNZ, effective from July 1, exempt construction loans from banking restrictions, aiming to encourage new home builds.
“The exemptions and lower construction costs are good news for those considering new building projects or buying from developers,” Davidson said.
However, he cautioned that despite these measures, a significant increase in activity is unlikely.
“The hope is that more stable economic conditions and lower interest rates in 2025 will help revive house building activity,” he said.
Compare the latest figures with the previous results here.
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