Is it really more expensive to build new in New Zealand?

Tuesday, 20 August 2019

The cost of building in New Zealand has soared.

Liz Campbell knew that building a new house would be expensive.

But what she wasn't expecting was just how much over budget it might go.

By the time the house is finally signed off, she expects it will be about 25 per cent more expensive than she and her partner, Vaughan Cooper, estimated it would be.

During the course of construction, she has had to switch builders and tradespeople, overcome problems with product quality and take over management of the year-long project.

* Red tape and high costs are strangling the building industry, new survey reveals

* New houses have cladding and joinery that lasts just 15 years**

'Our first builder was supposed to be the project manager. It didn't work out so I took it over. But the second builder was helpful and we were able to buy materials through his account.

'We were let down by a number of contractors not turning up or doing shoddy work,' she said.

Problems included an incorrectly sized hole for a door, water proofing for the grass roof, and problems with a kitchen installation.

Because the house was a unique design built into a hillside, the foundations also took longer.

We're often told that building new in New Zealand is pricier than in other countries. But is it really true?

Roy Thompson, co-founder and managing director of New Ground Capital, recently visited a show home in Melbourne which he said cost about NZ$1000 a square metre, compared with the $2000 per sq m or more it would cost in New Zealand.

'This seems to totally rebut the view that in New Zealand it is land and council compliance costs that are the problem.

'Henley Homes in Australia offer a 382 sq m design to buyers with their own sections, for a construction cost including labour, materials and margin from A$360,900.'

Establishing the grass roof required water proofing.

Another example was Henley's 274 sqm four-bedroom house over two levels from A$276,900 (NZ$289,693) construction cost.

Thompson said New Zealand's biggest home builders sold similar homes for a construction cost about $550,000 or roughly $2000 per sq m.

According to QV Costbuilder, the average 2018 construction cost for a 150 sq m three or four-bedroom house - smaller than the Australian example - was $310,315 in Auckland, $311,250 in Christchurch, $282,190 in Dunedin, $289,690 in Waikato, and $285,940 in Wellington.

The cost of construction in the main centres rose more than 30 per cent over the past 10 years, and fastest in Auckland.

Over the same decade, the price of land soared 50 per cent, labour costs rose 17 per cent, and plasterboard, cement, and concrete products kept pace with inflation at 13 per cent. House prices rose 57 per cent.

Thompson said Australian product quality was often higher, although there were bigger design and construction costs for seismic strength in New Zealand.

'Houses and apartments in New Zealand take much longer to design, consent and construct.'

Lack of innovation over alternative materials was due to the high cost of Building Research Association of NZ (Branz) certification, Thompson said.

Branz runs a scheme that shows a building product or system meets the requirements of the building code.

The innovative design of Liz Campbell and Vaughan Cooper's house also meant extra challenges such as foundations cut into the hillside and extra fencing for the grass roof.

Another impediment to competition was the material rebates schemes commonly offered by product manufacturers as incentives to builders and tradespeople to use their products, Thompson said.

But Kevin Marevich who set up and sold building supplies company ITM, and then founded BuildLink, said rebates were about building relationships, recognising valued customers, and enhanced market competition.

Many 'rebates' came in the form of educational seminars, he said.

Trans-Tasman comparisons were difficult because of different population sizes, scale and type of building, and geography, Marevich said.

It was popular to criticise Fletcher Building's dominance of plasterboard but Marevich said it was a 'beat up' and made up a relatively small portion of overall material costs.

'There are alternatives available but the overall savings over a house are only a few hundred dollars.'

Alternative products still represented a risk, even if it was perception, and could delay compliance sign-off.

'There's also a big emphasis on using a whole system including the tape and the plaster.

'We're a country of fewer than five million people, with difficult geography, and ridiculous compliance costs. There's no easy answer,' Marevich said.

Mike Greer, who founded Mike Greer Homes, said the cost of land was the overwhelmingly expense for developers and home owners.

'The next biggest costs come from our building codes that require over-engineering of materials. Australian requirements are more lightweight. Even their aluminium windows are much lighter, and so is their timber framing and cladding.

'You can get cheaper building by factory prefabrication but our building code is designed for houses that are built on site.'

Mike Greer homes were generally about 160 sq m and its biggest markets were in Auckland and Christchurch.

Locally-made gib board tends to be chosen over imported material.

'Red tape', or building compliance, was a massive roadblock in New Zealand compared with Australia, where Greer said state governments carried liability insurance rather than small councils.

Professor John Tookey, associate professor in construction management at AUT, said too many people expected customised, bespoke homes.

'Most new houses consented are four or five bedrooms whereas we need more two and three affordable types. And we need to seriously consider prefabrication.'

Tookey said Fletcher Building was an easy target to lambast but he said it was largely tall poppy syndrome.

Local builders and developers had sourced products from overseas for bulk delivery at low prices but were less keen to accept the liability and service warranties, which also cost money.

'We have seen multiple instances of faulty wiring, piping and plasterboard over the last couple of years. The liability lies with the importer at that point. On balance it is a risk game,' Tookey said.

Michael Bealing, senior economist at NZIER, agreed that land and infrastructure made up about 32 per cent of costs, building materials 20 per cent, fees and taxes about 16 per cent.

Deloitte researcher Linda Meade said it was generally cheaper or similar to build in New Zealand but Australians built more standardised houses, and had lower GST, and fewer seismic, fire and façade requirements.

'This explains the anecdotal differences in building costs. Plasterboard in New Zealand is a different product. It is used as a bracing component of the wall for Building Code compliance. This is not the case in Australia.

Property researcher Hugh Pavletich blames council inaction over land release for higher house prices in the regions.

'And the amount of reinforcing steel that goes into a concrete slab is significantly more due to seismic requirements in New Zealand,' Meade said.

Timber was the biggest single material cost at about 8 per cent of a house, with most other components making up about half of this proportion.

According to Branz, prices can vary widely depending on such things as the shape - an L shape is simpler than an H shape.

Builders were asked to price a basic open plan four bedroom 200 sq m house specification and also give costs for higher specified products.

Upgrading from a standard kitchen benchtop to a granite benchtop would lift the cost from $2600 to $4400, upgrading an acrylic shower to a tiled walk-in shower rose from $1800 to $3000, and changing from a rectangular shape to an L-shape would lift the design cost from $3000 to $18,500.

Property researcher Hugh Pavletich said affordable houses should be about three times median household earnings, rather than the current six, and materials were a small portion of the cost compared with land.

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