Building costs begin to come down at long last

The cost of building a home in New Zealand dropped for the first time in at least 12 years, June figures reveal.

It was not a large drop, just 1.1 percent in the three months to June, but nevertheless, the decline marks a significant milestone according to CoreLogic chief property economist Kelvin Davidson.

The figure comes from the Cordell Construction Cost Index, which has tracked the cost to build a standard single storey, three-bedroom, two-bathroom, brick and tile standalone home since 2012.

Davidson says the reduction in costs reflects a quieter period for the industry following completion of a surge in building consents and the resolution of Covid-19 related supply chain disruptions. 

“The downturn in workloads in the construction sector has eased the pressure on capacity and that has flowed through to reduced building costs,” Davidson says. “Coupled with a slowdown in the growth of average hourly wage rates, the flattening of building material costs has also caused this reversal in the rapid growth of the past few years.”

He says the increased availability of established properties on the market is likely reducing demand for new builds too, giving home buyers more choice.

He suggests that softer demand for new dwelling consents and less house building activity could mean flat or further falls to overall construction costs in the next few quarters of this year.

“The hope is that more stable economic conditions and lower interest rates in 2025 will help revive house building activity.” 

QV CostBuilder spokesperson Martin Bisset says significant economic headwinds continue to blow, drastically reducing activity across the wider construction sector. He says for consumers, the upside is that there are fewer capacity constraints and less upward pressure on pricing.

“Contractors are having to put their best price forward to win work,” he says.

In addition, government recently proposed changes to the Building Act what are intended to make it simpler and cheaper to build (see story p17). This includes requiring building consent authorities to accept products that comply with specific overseas standards equivalent to, or higher than, NZ standards.

However, it is likely to be some time before that has any effect on the cost of building, Bisset says, due to the time it will take to implement changes to the Act and then obtain approval for the products.

The CoreLogic report is at www.corelogic.co.nz/reports/cordell-construction-cost-index