The New Zealand residential construction industry continues to soften due to a decline in new building consents and workloads.
The latest Cordell Construction Cost Index (CCCI) shows construction costs rose by 0.5% in the September quarter, a slight decline from 0.6% reflected in the first six months of the year, and the lowest figure reported since Q4 2020.
Meanwhile, the annual growth rate experienced a sharp slowdown, dropping to 3.4% from a peak of 10.4% in late 2022.
CoreLogic chief property economist Kelvin Davidson says the annual index figure has now dipped 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 remain elevated, with more than 40,000 on a 12-month rolling basis. This is keeping builders still 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.”
Davidson says 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 notes 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,” he says.
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.
To read the report, visit www.corelogic.co.nz/reports/cordell-construction-cost-index.