Residential Construction Cost Growth at Lowest Level Since 2016, CoreLogic Reports

Date Published: 11 January 2024

Key Facts

• Residential construction cost growth is at its lowest since 2016, standing at 2.4%, as opposed to the 10-year average of 4.5%, as reported by CoreLogic.
• The reduced amount of pressure in the construction sector has been attributed to stable timber prices, eased material supply chains, and slight declines in metal product cost.
• Despite these favorable factors, prices of general hardware, predominantly imported goods, have experienced a surge. H1 insulation standards might also be increasing these costs.
• Current predictions suggest a continued decrease in construction cost growth, thanks to a probable cap on sector wage growth due to the surge in net migration.
• Despite a drop in new dwelling consents indicating a possible slowdown in construction activity, costs for new-built homes are not likely to plummet, but they won’t spike either.
• The report indicates incentives such as lower deposit requirements for new-build properties would boost developers’ confidence to proceed with new projects, aiding housing affordability in the long term.

Article Summary

According to recent data from CoreLogic, growth in residential construction costs in New Zealand has reached its seven-year low, currently standing at 2.4%. This rate is significantly below the 10-year average of 4.5%. CoreLogic’s chief property economist, Kelvin Davidson, attributes this downturn to stabilising timber prices, ease in material supply chains, and minor pricing declines in metal goods.

Conversely, some cost hikes have been observed, particularly in general hardware that are majorly imported items. The implementation of H1 insulation standards might also be exerting further upward pressure on costs. Despite the current market conditions, builders are reported to be reasonably busy, albeit less intensely compared to recent years.

Davidson anticipates future construction cost growth to remain subdued due to net migration, which might help control construction sector wage growth. He also highlights a decrease in new housing consent, suggesting that a softer construction activity phase might be sustained. However, he projects that costs for potential new builds are unlikely to precipitate or escalate significantly.

He concluded by supporting incentives like lower deposit needs for new-build properties, asserting that it would encourage developers to take on new projects, thus maintaining some control over housing affordability. The CoreLogic report examined the alteration of construction costs in the residential market by investigating a ‘standard’ single-storey, three-bedroom, two-bathroom, brick and tile dwelling.

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