Decline in cost growth offers stability for builders and consumers
New Zealand’s construction industry is witnessing a significant normalisation in the growth rate of construction costs, as indicated by CoreLogic's Cordell Construction Cost Index (CCCI) for the first quarter.
Stabilising construction costs
The CCCI reported a modest 0.5% increase, less than the long-term quarterly average of 1.1%, marking a shift towards stabilisation after a period of volatility.
The annual growth of 2.3% – significantly lower than the 10.4% peak in Q4 2022 – is the smallest increase in nearly eight years.
Kelvin Davidson (pictured above), CoreLogic’s chief property economist, noted that 2022 saw a surge in construction costs driven by COVID-19’s impact on supply chains and a spike in construction activity.
Davidson said New Zealand’s dwelling consents hit a 12-month peak of over 51,000 in May 2022.
“Supply chains have normalised and house-building activity has pulled back, easing the pressure on capacity and therefore cost growth,” he said in a media release.
“Most costs have stayed relatively stable since the end of 2023 and the CCCI has recorded no significant movement across any particular product or labour rates, which can account for up to half the cost of a new build, excluding land.”
Benefits for builders and consumers
The normalisation in construction cost growth rates is poised to offer advantages for both builders and consumers.
“The industry is facing less pressure on workloads and the decline in new dwelling consents suggests this softer phase of construction activity may remain in place for a reasonable period,” Davidson said.
“Flatter costs mean builders can price jobs more accurately, and consumers can be more confident that their final price won’t have spiralled by the time a job has been completed.”
He also anticipated a steady annual growth rate of 3-4% over 2024, suggesting costs to build will not spike higher.
For further insights, the full Cordell Construction Cost Index report is available on CoreLogic’s website.
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