Homebuilding costs fall for the first time since 2012
The Cordell Construction Cost Index (CCCI), which measures the cost to build a standard single-storey, three-bedroom, two-bathroom, brick-and-tile detached house, fell 1.1% in the June quarter.
This was the first quarterly drop in building costs since the CCCI began in 2012, and was driven by declines in prices for structural steel, kitchen joinery, tapware and electrical light fixtures.
In annual terms, building cost growth slowed from 2.3% in the March quarter to a record-low 0.6% in the June quarter (with the previous low being 2.0% in 2014).
CoreLogic Chief Property Economist Kelvin Davidson said the reduction in prices during the June quarter was unsurprising given the construction industry’s soft operating conditions.
“Construction costs spiked during 2022 due to lingering COVID-affected supply chain issues, as well as a boom in construction activity as dwelling consents peaked around that same period. Those factors have all now been resolved with material supply back to normal, dwelling consents falling and the pipeline of jobs coming to completion. This has alleviated significant pressure on the industry, freeing up capacity and reducing costs,” he said.
“The downturn in workloads in the construction sector has eased the pressure on capacity and that’s flowed through to reduced building costs. Coupled with a slowdown in the growth of average hourly wage rates, the flattening of building materials costs has also caused a reversal in trends from the rapid growth in construction costs in the past few years.”
Why prices might fall further
Looking ahead, Mr Davidson said construction costs might fall further in the next few quarters, given house-building activity and dwelling consents were forecast to decline.
When the Reserve Bank of New Zealand created new debt-to-income rules, which took effect on 1 July, it exempted construction loans, in order to stimulate homebuilding activity – but Mr Davidson said significant increases in activity were unlikely.
“The exemptions and lower construction costs are good news for those considering new building projects or buying from developers. However, with dwelling consents down nearly 30%, the downturn could impact future housing supply,” he said.
“That said, the risks of widespread housing shortages re-emerging seem relatively low for now, especially since the Government is pushing so hard at present to increase housing supply. The hope is that more stable economic conditions and lower interest rates in 2025 will help revive housebuilding activity.”
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