House building costs drop for first time in 12 years: Down 1.1% in latest quarter

Just as the Government prepares to ‘flood’ cities with new homes, residential building costs have fallen for the first time in 12 years.

According to the latest Cordell Construction Cost Index out today, the cost to build a standard, single-storey, three-bedroom, two-bathroom, brick-and-tile standalone dwelling during a normal build-time fell 1.1% in the three months to June.

Housing Minister Chris Bishop said last Thursday the Government wanted more liberalised planning rules so many more homes could be built throughout New Zealand.

Today, commentary with the index said: “This is the first decline in construction costs in the history of this series, which dates back to late 2012, with the previous lowest figure a 0.3% rise in both Q2 2016 and Q3 2013”.

The fall in building costs during this year’s second quarter also meant that the annual growth rate slowed from 2.3% in this year’s first quarter to 0.6% in the second quarter.

This is also a new record low for this indicator.

Kelvin Davidson, CoreLogic chief property economist, said the decline followed a huge surge in building consents and resolution of pandemic supply chain disruptions.

This time of year is a subsequently quieter period, he noted.

“The downturn in workloads in the construction sector has eased the pressure on capacity and that’s flowed through to reduced building costs,” Davidson said.

“Coupled with a slowdown in the growth of average hourly wage rates, the flattening of building materials costs has also caused a reversal in trends from the rapid growth in construction costs in the past few years.”

The index recorded price falls for structural steel and kitchen joinery, tapware and electrical light fixtures.

Davidson expected that growth in the index would be subdued and said he was not surprised about the falls given the construction industry’s soft operating conditions.

Construction costs spiked in 2022 due to lingering Covid-affected supply issues, as well as a construction boom when dwelling consents peaked around that same period, he said.

The downturn in workloads and more capacity is now flowing through into reduced building costs.

reported in August 2021 how annual housing consents hit an all-time high, eclipsing figures that date back to a year before World War II broke out.

Stats NZ data showed the number of new homes consented in the year to July 2021 was 45,119. Never since records started in 1938 have so many consents been granted for new homes.

But consent data was down a quarter in the year to February 2024. Consents were issued for 36,276 new homes, down 25 per cent annually. Wellington numbers fell 40% annually, Waikato down 28%, Auckland down 27% and Canterbury was down 21%.

The index out today showed a big reversal of recent price rise trends.

Homes cost 10% more to build in Q4 2022 than they did in late 2021 – a record pace of increase. But forecasts were for numbers and prices to fall.

Anne Gibson has been the Herald’s property editor for 24 years, written books and covered property extensively here and overseas.