Property

Construction costs soar

A surge in new building consents is piling extra pressure on New Zealand’s construction industry, with annual costs increasing 7.3%  - a record, eclipsing 2017’s fourth quarter cyclical peak of 6.9%.

Wednesday, April 27th 2022

CoreLogic’s Cordell Construction Cost Index (CCCI) shows the first quarter of this year also hit a new record high of 2.4%, surpassing the previous fastest rise of 2.2% recorded in the second quarter last year.

CoreLogic’s Chief Property Economist Kelvin Davidson says while New Zealand’s overall economic momentum has lost a bit of lustre in recent months, the construction industry remains strong on the back of dwelling consent numbers, which hit a record high of almost 49,800 in the 12 months to February.

“Estimates vary and carry uncertainty, but there’s a sense now that the industry itself might only have capacity for 30-35,000 dwellings in any given year – quite a bit lower than current consents, implying a spill over into future years,” he says.

Although smaller dwellings such as townhouses and apartments account for 49% of the total figure and will require fewer materials than standalone houses, Davidson says the sheer volume of new builds will mean there’s no respite for the stretched materials supply chain and an industry that’s facing labour shortages.

“Some key components are driving the increases in the prices of materials, including timber in general, structural products specifically, as well as metal prices,” he says.

“Variability in wholesale prices means suppliers are passing through increases to their customers more often and can’t retain existing price lists for too long. Wage costs are also rising in the house-building industry as firms work to full capacity.”

Davidson says the implications of higher mortgage rates and rising construction costs could potentially mean some home owners and buyers opt to forgo or delay new builds, renovations and alterations in the short term.

However, even if building consents tail off, it’s unlikely to translate into an easing of the Construction Index with rises forecast to continue throughout this year with delays in construction completion times and material shortages to remain. Simply based on the pipeline of dwelling consents already approved, Davidson says builders will be busy for some time to come yet.

“I wouldn’t rule out a period of double-digit cost inflation into next year too – especially if the Ukraine-Russia situation keeps the pressure on oil prices and global shipping even if/when omicron’s impact fades,” he says.

“One implication of the capacity pressures for house-building is the time between dwelling consent and completion could increase further. Meanwhile, product substitution could continue to become more common too – either costing more for the same quality, or downgrading on quality to keep the costs similar. Finally, reduced dwelling consents in future would tend to underpin the values of existing properties.”

Comments

No comments yet

Kainga Ora - First Home Buyer Special 2.25
Heartland Bank - Online 3.85
The Co-operative Bank - First Home Special 4.19
SBS Bank Special 4.19
ICBC 4.29
The Co-operative Bank - Owner Occ 4.29
Select Home Loans 4.29
TSB Special 4.34
HSBC Premier 4.39
China Construction Bank Special 4.45
AIA 4.49
Heartland Bank - Online 4.70
SBS Bank Special 4.85
Select Home Loans 4.86
TSB Special 4.99
ICBC 5.09
HSBC Premier 5.15
The Co-operative Bank - Owner Occ 5.19
Kiwibank Special 5.19
Westpac Special 5.19
China Construction Bank Special 5.19
First Credit Union Special 5.20
Select Home Loans 5.20
TSB Special 5.75
Kiwibank Special 5.79
Westpac Special 5.89
ICBC 5.89
HSBC Premier 5.89
The Co-operative Bank - Owner Occ 5.95
SBS Bank Special 5.95
BNZ - Classic 5.99
Resimac 6.33
China Construction Bank Special 6.35
ANZ Blueprint to Build 2.78
Pepper Essential 3.44
Heartland Bank - Online 4.00
Select Home Loans 4.09
Resimac 4.59
TSB Special 4.79
Liberty 4.84
Kiwibank Special 5.00
Kiwibank - Offset 5.00
Kiwibank 5.00
Wairarapa Building Society 5.24

More Stories

House price caps off First Home Loans

Thursday, May 19th 2022

House price caps off First Home Loans

The Government is to make it easier for more people to get into housing.

The next property frontier

Thursday, May 19th 2022

The next property frontier

Private space tourism took a giant leap forward last year and this has pundits wondering about hotels and other buildings popping up any time soon.

Illegal car removals costs landlord thousands of dollars

Thursday, May 19th 2022

Illegal car removals costs landlord thousands of dollars

A Hamilton tenant who claimed his landlord removed two ‘classic Japanese’ cars from his rented home without his knowledge or permission has been awarded $1500 compensation and $2000 in exemplary damages.

Prices for development land set to skyrocket

Wednesday, May 18th 2022

Prices for development land set to skyrocket

Land values are expected to rise even further when councils accelerate housing intensification under the Government’s National Policy Statement on Urban Design (NPS-UD).