It’s not getting any cheaper to build a house, but building cost increases are shrinking – with the 0.8% cost rise in the fourth quarter of 2023 at its lowest level in around seven years.
The latest data from CoreLogic highlights a seven-year low in building cost increases – a downward trend that will at least give developers the confidence to plan new building projects with a bit more certainty.
Economists also speculate that the recent surge in migration could further help constrict building cost growth, with salaries accounting for 40-50% of the total cost of a new build, excluding land.
However, don’t expect to see any major uptick in new-build activity in the near term as the number of new dwelling consents plummets. The annual number of new homes consented has persistently decreased since its peak of 51,015 in the year ending May 2022. A comparatively meagre 38,209 new homes were consented in the year ending November 2023 – a decrease of 24% compared to the preceding year, according to Stats NZ.
CoreLogic’s report measures the rate of change of construction costs within the residential market for a typical, ‘standard’ three-bedroom, two-bathroom brick and tile single-story dwelling.
Residential construction sector temperature drops – economist
CoreLogic Chief Property Economist Kelvin Davidson said the heat has come out of New Zealand’s residential construction sector over the past quarter.
“The industry itself is simply facing less pressure on overall capacity, compared to its peak at the end of 2022, where over-stretched builders struggled to keep up with workloads for new houses and renovations,” he said. “Records show material supply chains are easing further, with timber prices stabilising, and even some modest falls for metal products.”
Despite the cooldown, Davidson suggests demand incentives, such as lower deposit requirements under the LVRs for people to invest in new-build properties, will give developers a degree of confidence to launch new projects. “In the long run, this new supply is what we need to keep housing affordability under some kind of control,” he said.
Auckland dwelling consents
Auckland is ahead of the curve when it comes to consents for townhouses, flats, and units. At the national level, the annual number of townhouses, flats, and units consented exceeded stand-alone houses for the first time in the year ending March 2023. Auckland first recorded this pattern in November 2020.
In the Auckland region for the year ending November 2023 there were 9,427 townhouses, flats, and units consented – a 26% decrease on the previous year. Also consented: 4,122 stand-alone houses (-18%), 1,724 apartments, (-45%), and 599 retirement village units (-26%).
The softening phase of building activity will ratchet up competition for housing. That’s positive for landlords, not so good for tenants. Call 0800 GOODWINS to put your rental property into safe hands.