Residential construction costs are starting to normalise

Homebuilding costs are continuing to rise, but at a moderate, manageable pace, according to the latest Cordell Construction Cost Index (CCCI)

Costs rose 0.6% over the June quarter, after also rising by 0.6% in the March quarter. That's a big improvement on the average quarterly increases of 2.5% recorded in 2022.

As a result, year-on-year price growth fell from 8.5% in the March quarter to 6.4% in the June quarter. While that's still above the decade average of 4.5%, it's well below the peak of 10.4% that was recorded in late 2022.

The CCCI measures the cost to build a single-storey, brick-and-tile home with three bedrooms and two bathrooms.

Homebuilding demand has fallen

CoreLogic Chief Property Economist Kelvin Davidson said New Zealand has experienced a decline in the number of homebuilding approvals, which has taken heat out of the market.

“Although we’re also seeing the actual volume of building work start to drop, the construction industry is still busy as it works through the pipeline of previously-approved consents,” he said.

“The widely-anticipated slowdown in consents has alleviated some pressure on the construction materials supply chain in recent months while also slightly reduced workloads for builders, which means that the growth in costs isn’t as intense as it was in 2022.”

Some materials costs have declined

Mr Davidson said timber prices had stabilised in 2023, and that some structural timber costs had actually declined.

Similarly, metal prices have remained steady or even – as in the case of structural steel – fallen.

But one thing that’s putting upward pressure on prices is the tightening of the H1 energy efficiency and insulation standards, which occurred on 1 May. Mr Davidson estimated this would add 3-5% to the cost of a standard build.

“It’s possible that the overall CCCI may well have slowed even further in [the June quarter], had it not been for the new roof, window, wall and underfloor insulation building code changes,” he said.

Many New Zealanders have faced challenges building a house over the past couple of years, because prices have been rising so fast and it’s been hard to find a builder. Now that construction costs are growing at a much slower pace and fewer people are looking to build, conditions have eased. If you’ve been holding off building your dream home, now might be a good time. Contact me if you’d like to chat about financing the project.