The New Zealand residential construction industry continues to soften due to a decline in new building consents and workloads, further easing cost pressures.
The latest Cordell Construction Cost Index (CCCI) shows construction costs rose by 0.5% in the September quarter, a slight decline from 0.6% in both Q1 and Q2 2023, and the lowest figure reported since Q4 2020 (0.4%).
Meanwhile, the annual growth rate has experienced a sharp slowdown dropping to 3.4% (6.4% in Q2), from a peak of 10.4% in late 2022.
CoreLogic Chief Property Economist Kelvin Davidson said the annual index figure now dips below the 10-year average of 4.5%.
“We’ve now entered a more subdued phase for construction cost inflation, reflecting the marked easing in materials supply chains, compared to the COVID-affected period over 2021 and 2022.”
“New dwelling consents are slowing, but remain elevated with more than 40,000 on a 12-month rolling basis. This is keeping builders relatively busy working through a pipeline of previously-approved dwellings, as well as a continued stream of work on alterations and additions.”
“Although building capacity pressures have eased, half of project costs stem from labour, and continued growth in wages is keeping some pressure on overall construction costs.”
Mr Davidson said a fair proportion of building components prices remained flat across the three months to September, with scattered increases and decreases across metal and timber materials.
He noted it’s likely new dwelling consent volumes will fall further, with workloads and construction costs continuing to moderate over the next two to three years.
“It wouldn’t be a surprise to see the quarterly rate of change in the CCCI continue in the vicinity of 0.5% for the next few quarters.
“While new builds probably won’t get cheaper, a controlled annual growth rate of 2-3% gives confidence for buyers to invest and for developers to keep bringing projects forward,” Mr Davidson said.
CoreLogic researches, tracks and reports on materials and labour costs which flows through to its Cordell construction solutions to help businesses make more informed decisions, estimate rebuild and insurance quotes easily and, ultimately, appropriate risk effectively.
The CCCI 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-storey dwelling completed over a typical period of time without undue delays.
For more information or to read the report, visit www.corelogic.co.nz/reports/cordell-construction-cost-index.