Building costs still climbing, but rate is slowing

The average cost of building a standard three-bedroom home in New Zealand’s main centres has increased by 1.8% annually, but by just 0.3% this quarter.

This compares to an average increase of 4.9% in the year ending December 2023, and 9.5% in the year to the end of June 2023.

“The rate of building cost inflation is certainly on the wane,” QV CostBuilder spokesperson Martin Bisset says.

“This will be welcome news to all those who are currently contemplating or pricing up new building projects, especially at a time of such economic uncertainty.”

Bisset says significant economic headwinds continue to blow, which have drastically reduced activity across the wider construction sector. For consumers, the upside of that is there are fewer capacity constraints and, therefore, less upward pressure on pricing.

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

“We’re also seeing that many of the supply chain issues that arose as a result of Covid-19 have been rectified, with fuel costs and interest rates also sitting relatively steady for the time being. Inflationary pressures remain stubbornly high generally – both at home and abroad – but this is also firmly on a downward track.”

It comes after the Government recently proposed changes to the Building Act that are intended to make it simpler and cheaper to build. This includes requiring building consent authorities to accept products that comply with specific overseas standards that are equivalent to, or higher than, those in New Zealand.

“Anything that makes the cost of building cheaper will be a good thing, provided we also ensure the quality and reliability of the products and materials being used. However, due to the timeframe it will take to implement the changes to the Act, and then obtain approval for the products, there is unlikely to be a reduction in building costs in the near future,” Bisset says.

According to CostBuilder, the biggest elemental price increases since the last update in February related to exterior walls/finish, which increased by an average of 0.8%. Frame costs reduced by 0.7%, due to a reduction in the price of structural steel, with site preparation costs also falling 1.6%, due to a decrease in the sheet piling rate.

On average, each trade rate increased by just 0.1% since February. Most notably, the cost of suspended ceilings increased by 2.5%, the cost of fire-proofing went up by 2.2%, and carpentry costs climbed 1.6%. At the same time, structural steel reduced by 1.4% and metal framing dropped 2.3%.

“It’s important to remember these figures are only averages and the true cost of building will always be dependent on the level of finishes, internal layout, and all manner of other elements,” Bisset says.