Construction activity may rise in 2025 with lower mortgage rates
Construction cost growth in New Zealand continued to decelerate during the final quarter of 2024, according to CoreLogic's latest Cordell Construction Cost Index (CCCI).
The data reveals a quarterly rise of 0.6% for a typical single-storey, three-bedroom home, a marked decline from the 1.1% increase recorded in the previous quarter and below the long-term average of 1.0%.
Annual cost growth also slowed to 1.1%, down from 2.4% in 2023 and significantly below the 10.4% surge seen in 2022.
CoreLogic’s chief property economist, Kelvin Davidson (pictured above), noted that the moderation in construction cost growth aligns with reduced pressures on the sector. He attributed this trend to improvements in materials supply chains and a slowdown in both new dwelling consents and residential construction activities.
"As a result, there’s been reduced pressure on the industry’s capacity, which naturally dampens cost growth, both for materials and labour," said Davidson.
Davidson explained that while the construction downturn has been substantial, it emerged from a historically high level of activity. Over the long term, recent construction volumes and consents have remained above previous troughs, such as those following the Global Financial Crisis.
Product-specific cost trends in the fourth quarter reflected variability. Prices for carpet, wall insulation, and plasterboard increased by 3%, 3%, and 4% respectively. Conversely, external timber products and kitchen joinery saw cost reductions of 5% and 3%.
Looking ahead, Davidson predicted that construction activity might improve in 2025, supported by falling mortgage rates. However, he cautioned that overall cost growth is likely to remain contained. He also suggested that a potential rise in construction is on the horizon.
"There are also signs in the new dwellings data from Stats NZ that a floor may have been reached and that a rise in construction is likely in 2025," he said.
Regulatory factors, including loan-to-value ratio rules and debt-to-income (DTI) restrictions, continue to shape market dynamics. Davidson noted that while DTIs have had limited impact recently, their influence is expected to grow as mortgage rates decline, potentially driving greater demand for new-build properties.
As New Zealand’s construction sector adapts to changing economic conditions, how do you see these trends impacting housing affordability and supply? Share your thoughts in the comments.
