Construction costs continue to rise, but peak growth may be nearing

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CoreLogic chief property economist Kelvin Davidson.

CoreLogic NZ’s Cordell Construction Cost Index (CCCI) for Q3 2022 showed further acceleration in the rate of indexed growth in national residential construction costs, with the quarterly and annual measures surpassing the previous records set just last quarter.

The CCCI indicates the cost to build a standard 200sq m, three-bedroom, two-bathroom single-storey brick and tile house in New Zealand increased by 3.4% in Q3, exceeding the 2.6% rise recorded over the three months to June.

Annual growth reached 9.6%, almost two percentage points higher than in the year to June (7.7%).

CoreLogic chief property economist Kelvin Davidson says while there are signs of a slowdown for the residential construction industry, they are small and coming off a very high base.

“Overall dwelling consents are now declining year-on-year. However, costs are still a problem,” he says.

In terms of underlying drivers, the Cordell costings team was continuing to see rising timber and metal prices, which were affecting framing and reinforcing, Davidson says.

This indexed model of construction costs allowed for standard build times, acknowledging that completion time frames had lengthened lately as some materials remain hard to procure, he says.

He also noted the CCCI covers a brick house, so anything with timber cladding will have seen overall costs rise at an even faster pace.

“Looking ahead, I wouldn’t be surprised to see the rate of construction cost accelerate further, potentially to double digits by the end of the year, before it starts to ease up into 2023.

“Certainly, one encouraging development in the past month or two has been the improvement in supply chain conditions, with plasterboard, for example, now much easier to find.

“This easing in cost growth will be very important in the longer term so developers and households aren’t dissuaded from taking the new-build path which critically assists in boosting overall housing supply,” he says.

CoreLogic researches, tracks and reports on materials and labour costs which flows through its Cordell construction solutions to help businesses make more informed decisions, estimate rebuild and insurance quotes easily and, ultimately, appropriate risk effectively.

For more information or to read the report, visit www.corelogic.co.nz/reports/cordell-construction-cost-index.

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