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Construction costs soar

A surge in new building consents is piling extra pressure on New Zealand’s construction industry, with annual costs increasing 7.3%  - a record, eclipsing 2017’s fourth quarter cyclical peak of 6.9%.

Wednesday, April 27th 2022, 9:52AM

by Sally Lindsay

CoreLogic’s Cordell Construction Cost Index (CCCI) shows the first quarter of this year also hit a new record high of 2.4%, surpassing the previous fastest rise of 2.2% recorded in the second quarter last year.

CoreLogic’s Chief Property Economist Kelvin Davidson says while New Zealand’s overall economic momentum has lost a bit of lustre in recent months, the construction industry remains strong on the back of dwelling consent numbers, which hit a record high of almost 49,800 in the 12 months to February.

“Estimates vary and carry uncertainty, but there’s a sense now that the industry itself might only have capacity for 30-35,000 dwellings in any given year – quite a bit lower than current consents, implying a spill over into future years,” he says.

Although smaller dwellings such as townhouses and apartments account for 49% of the total figure and will require fewer materials than standalone houses, Davidson says the sheer volume of new builds will mean there’s no respite for the stretched materials supply chain and an industry that’s facing labour shortages.

“Some key components are driving the increases in the prices of materials, including timber in general, structural products specifically, as well as metal prices,” he says.

“Variability in wholesale prices means suppliers are passing through increases to their customers more often and can’t retain existing price lists for too long. Wage costs are also rising in the house-building industry as firms work to full capacity.”

Davidson says the implications of higher mortgage rates and rising construction costs could potentially mean some home owners and buyers opt to forgo or delay new builds, renovations and alterations in the short term.

However, even if building consents tail off, it’s unlikely to translate into an easing of the Construction Index with rises forecast to continue throughout this year with delays in construction completion times and material shortages to remain. Simply based on the pipeline of dwelling consents already approved, Davidson says builders will be busy for some time to come yet.

“I wouldn’t rule out a period of double-digit cost inflation into next year too – especially if the Ukraine-Russia situation keeps the pressure on oil prices and global shipping even if/when omicron’s impact fades,” he says.

“One implication of the capacity pressures for house-building is the time between dwelling consent and completion could increase further. Meanwhile, product substitution could continue to become more common too – either costing more for the same quality, or downgrading on quality to keep the costs similar. Finally, reduced dwelling consents in future would tend to underpin the values of existing properties.”

Tags: construction

« Building consent values skyrocketSkyrocketing rents matching record inflation »

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Lender Flt 1yr 2yr 3yr
AIA - Back My Build 6.19 - - -
AIA - Go Home Loans 8.74 7.24 6.79 6.65
ANZ 8.64 7.84 7.39 7.25
ANZ Blueprint to Build 7.39 - - -
ANZ Good Energy - - - 1.00
ANZ Special - 7.24 6.79 6.65
ASB Bank 8.64 7.24 6.79 6.65
ASB Better Homes Top Up - - - 1.00
Avanti Finance 9.15 - - -
Basecorp Finance 9.60 - - -
Bluestone 9.24 - - -
Lender Flt 1yr 2yr 3yr
BNZ - Classic - 7.24 6.79 6.65
BNZ - Green Home Loan top-ups - - - 1.00
BNZ - Mortgage One 8.69 - - -
BNZ - Rapid Repay 8.69 - - -
BNZ - Std, FlyBuys 8.69 7.84 7.39 7.25
BNZ - TotalMoney 8.69 - - -
CFML Loans 9.45 - - -
China Construction Bank - 7.09 6.75 6.49
China Construction Bank Special - - - -
Co-operative Bank - First Home Special - 7.04 - -
Co-operative Bank - Owner Occ 8.40 7.24 ▼6.79 ▼6.65
Lender Flt 1yr 2yr 3yr
Co-operative Bank - Standard 8.40 7.74 ▼7.29 ▼7.15
Credit Union Auckland 7.70 - - -
First Credit Union Special - 7.45 7.35 -
First Credit Union Standard 8.50 7.99 7.85 -
Heartland Bank - Online 7.99 6.69 6.45 6.19
Heartland Bank - Reverse Mortgage - - - -
Heretaunga Building Society 8.90 7.60 7.40 -
HSBC Premier 8.59 - - -
HSBC Premier LVR > 80% - - - -
HSBC Special - - - -
ICBC 7.85 7.05 ▼6.75 6.59
Lender Flt 1yr 2yr 3yr
Kainga Ora 8.64 7.79 ▼7.39 ▼7.25
Kainga Ora - First Home Buyer Special - - - -
Kiwibank 8.50 8.25 7.79 7.55
Kiwibank - Offset 8.50 - - -
Kiwibank Special - 7.25 6.79 6.65
Liberty 8.59 8.69 8.79 8.94
Nelson Building Society 9.00 7.75 7.35 -
Pepper Money Advantage 10.49 - - -
Pepper Money Easy 8.69 - - -
Pepper Money Essential 8.29 - - -
Resimac - LVR < 80% 8.84 8.30 7.89 7.69
Lender Flt 1yr 2yr 3yr
Resimac - LVR < 90% 9.84 9.30 8.89 8.69
Resimac - Specialist Clear (Alt Doc) - - 8.99 -
Resimac - Specialist Clear (Full Doc) - - 9.49 -
SBS Bank 8.74 7.84 7.45 7.25
SBS Bank Special - 7.24 6.85 6.65
SBS Construction lending for FHB - - - -
SBS FirstHome Combo 6.19 6.74 - -
SBS FirstHome Combo - - - -
SBS Unwind reverse equity 9.95 - - -
Select Home Loans 9.24 - - -
TSB Bank 9.44 8.04 7.55 7.45
Lender Flt 1yr 2yr 3yr
TSB Special 8.64 7.24 6.75 6.65
Unity 8.64 6.99 ▼6.79 -
Unity First Home Buyer special - - 6.45 -
Wairarapa Building Society 8.60 7.15 6.85 -
Westpac 8.64 7.89 7.49 7.25
Westpac Choices Everyday 8.74 - - -
Westpac Offset 8.64 - - -
Westpac Special - 7.29 6.89 6.65
Median 8.64 7.29 7.32 6.65

Last updated: 14 March 2024 9:32am

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