No reprieve in sight for industry, says economist
National residential construction cost pressures continue to escalate with both quarterly and annual rates reaching record highs, a new report has found.
CoreLogic NZ’s Cordell Construction Cost Index (CCCI) for Q2 2022 showed the cost to build a “standard” 200sq m three-bedroom, two-bathroom single storey brick and tile house in New Zealand rose 2.6% over the quarter.
This lifted the annual growth in construction costs to 7.7%, which was the largest increase since the CCCI commenced in 2012.
CoreLogic chief property economist Kelvin Davidson (pictured) said the CCCI figures further supported the evidence that the industry was under immense cost pressures with no reprieve expected in the short term.
“This indexed model of construction costs allowed for standard build times,” Davidson said. “This is the swiftest rise in the NZ CCCI we’ve seen in a decade and I don’t expect these price pressures to ease for at least another couple of quarters, given ongoing materials shortages and labour pressures.”
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CoreLogic construction cost estimation manager John Bennett said rapid recent cost growth had impacted a range of different trade categories and components in residential construction.
“Metal prices continue to be affected with further rises to reinforcing fixings and fittings,” Bennett said. “The cost of metal also has an impact on fencing and garage doors as well as the aluminium window industry, with substantial increases for those products too. The effect of higher timber costs also continues to flow through the market.”
Bennett said he was seeing knock-on effects into different industries such as landscaping supplies and kitchen cabinetry.
“Imported products, particularly metal-based items and tiles are rising as well as cost hikes from consultancies, affecting preliminary costs,” he said. “It is important to note that other pressures are at play on the industry, with labour availability and overheads impacting costs. Labour availability can also affect build times and can leave builders more exposed to market changes and holding costs, making it a perfect storm.”
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The CCCI indicates that new dwelling consents have continued to hover around 50,000 on an annual basis, driven by smaller dwellings such as townhouses which now equate to more than half (51%) of all new consents nationally – a record high.
In Auckland, that proportion has surged above 70%.
Davidson said while smaller dwellings may require fewer materials, the volume in the pipeline indicated there would likely be no respite for the stretched materials supply chain, nor for labour capacity.
“In turn, this is showing up as continued pressure on construction costs, especially when accounting for alterations/renovation work and non-consented activity too,” he said. “Looking ahead, it wouldn’t be a surprise if cost pressures get worse in the next quarter or two, potentially pushing up towards double-digit indexed growth, before they start to slow later as builders’ workloads potentially ease off in 2023.”
