Stabilising Residential Construction Costs Lower Risk of New Build Cost Overruns

Date Published: 10 April 2024

Key Facts

• Residential construction costs have risen by only 2.3% in the year to March, signifying a moderation in price hikes, according to the Cordell Construction Cost Index by CoreLogic.
• The Index gauges various costs within the residential building trade, like labour, materials, plant hire, and subcontracting services, to estimate the cost of constructing a standard single-story, three-bedroom/two-bathroom brick and tile dwelling.
• The costs climbed by 0.5% in Q1 2024, showcasing a steady decrease from their recent peak of 3.4% in Q3 2022.
• Yearly construction cost increments have dwindled from a high of 10.4% in Q4 2022, down to 2.3% in Q1 2024, marking the lowest inflation rate since Q3 2016.
• CoreLogic’s chief property economist, Kelvin Davidson confirmed that the building costs surge in 2022 was due to lingering Covid-inflicted supply chain disruptions and a boom in construction activities.

Article Summary

Residential construction costs in New Zealand are seeing a downturn, increasing by a mere 2.3% in the year up to March, based on findings from the Cordell Construction Cost Index compiled by CoreLogic. This Index takes into account multiple cost factors in the residential construction industry, such as labour, materials, plant hire, and subcontracting, to estimate building costs for a standard single-level, three-bed/two-bath brick and tile house.

Within the first quarter of 2024, these costs showed a slight uptick of 0.5%, indicating a consistent drop from their recent surge of 3.4% in Q3 2022. On a yearly scale, construction cost raises have fallen from their crest of 10.4% in Q4 2022, settling to 2.3% in Q1 2024, which is the lowest rise in costs since Q3 2016.

Kelvin Davidson, the chief property economist at CoreLogic, attributed the spike in construction costs during 2022 to the Covid-induced supply chain issues and a soaring demand for construction. However, supply chains have now normalised, and the house construction activities have dialled back, reducing the cost growth pressure.

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