Building cost increases drop to lowest level on record

Thursday, 12 December 2024

There was a 1.5% increase in the cost of building a standard three-bedroom home in the year to November, QV says.

Residential building cost increases have dropped to the slowest rate since records began in 2015 as inflation has eased, Quotable Value says.

New figures from QV’s Costbuilder database showed there was a 1.5% increase in the cost of building a standard three-bedroom home in the main centres in the year to November.

That was down from 5.6% over the same period last year, and a huge drop from the Covid-era record cost increase of 20.9% in the year to June 2022.

The previous lowest annual increase was 1.6% for the year to November 2020.

During the Covid era, the costs of all components of construction, including materials and labour, went through the roof as supply chain problems and inflation became issues.

Many of the drivers behind the steep increases in building costs in the Covid-era have gone, QV’s Martin Bisset says.

The Gib board shortage, which led to stock being sold on Trade Me for six times the retail price at one point, came to represent the steep increases in costs.

CostBuilder spokesperson Martin Bisset said that after four years of pronounced volatility, construction costs had been significantly more stable this year.

It was reflective of inflationary pressures continuing to ease at home and abroad, he said.

“Many of the catalysts behind the rapid residential construction cost growth we saw throughout the early years of the pandemic are now no longer a major factor.

“Record low interest rates are long gone, house prices have generally been on the wane for some time, supply chains have been re-established, and population growth has slowed.”

Costbuilder monitors the costs of more than 8000 building components including labour rates, and there were increases in some elemental prices since the last monthly update, the latest figures showed.

Suspended ceiling costs grew 5%, due to an increase in panel and grid systems, while the cost of steel framing was up 4.7%, and exterior walls, wall and ceiling finishes all increased by between 0.8% and 1.2%.

Christopher Luxon announcement with Building & Construction Minister Chris Penk

But site preparation costs fell 1.2% due to the reduced cost of steel sheet piling rates, while structural steel and steel framing were down by 4.7% and 0.7% respectively.

Bisset said it was important to remember the figures were averages, and the cost of building was always dependent on the level of finishes, internal layout, and other elements in a home.

The residential construction industry had been going through tough times, with demand dropping precipitously in recent years, he added.

“But interest rates are on their way back down again now, and construction costs are largely stable. This could well pave the way for increased optimism in 2025.”

Residential construction has been hard-hit by the recession, with a significant decline in consents for new homes and a downturn in activity.

Stats NZ’s latest figures showed residential building activity was down 3.5% in the September quarter, compared with the previous quarter, and was at its lowest level in five years.

Earlier this year, the National Construction Pipeline Report forecast the value of residential activity would fall to a low of $27.1 billion in 2026–27, down from a peak of $33.8b in 2022. It would then rise to $28.4b in late 2028, a level still below the 2019 level of $31.8b.

Meanwhile, the Government has introduced a raft of measures intended to reduce the high costs of building a home by streamlining the consent process and allowing more overseas products onto the market.