National leader Christopher Luxon on the OCR and inflation. Video / Mark Mitchell
The rate of inflation in the house-building sector halved in the latest quarter but still hit a new annual high of 10.4 per cent, according to a study out today.
The short-term trend might be down but the 12-month picture still shows fast-escalating increases in the sector.
CoreLogic NZ’s CordellConstruction Cost Index found 1.7 per cent inflation in the residential building sector in the final quarter of last year, down on the 3.4 per cent increase in the third quarter, or the three months to last September.
But annual residential construction inflation still hit an all-time high at 10.4 per cent which surpasses the previous 9.6 per cent record set in the last year’s third quarter.
Kelvin Davidson, Corelogic chief property economist, blamed a range of factors for fast-rising prices: materials supply issues, labour shortages and completion delays contributed to the unprecedented increase to the cost of residential construction throughout 2022.
Reduced inflation in the last quarter of the year points to a changing trend, Davidson said.
“For most of 2022, new dwelling consents have remained high, with smaller dwellings, especially townhouses, becoming an even higher share of the total nationally 56 per cent in the year to October, and 77 per cent in Auckland. But the very latest data is finally hinting at the long-awaited slowdown, with October’s dwelling consent figure itself down by 12 per cent from the same month a year ago,” he said.
The data is based on measuring the cost to build a standard 200sq m three-bedroom, two-bathroom single-storey brick and tile house.
Davidson expects annual inflation for construction costs to hold at around 10 per cent for this year’s first quarter, before easing during the rest of the year.
But falling values, shown by sales data, might change that.
“However, in a market where existing house values are dropping, it may well be difficult for builders to keep pushing up new-build prices to compensate for higher costs. If so, the net result of continued increases in construction costs, even if at a slower pace, would be further pressure on construction firms’ profit margins.”
Annual new dwelling consents could drop from around 50,000 annually to around 30,000 to 35,000 in the longer term, he said.
New Zealand’s busiest privately-owned non-franchised residential builder was showing signs of stress at the end of last year. Williams Corporation doubled timeframes for repaying $152.4 million of investors’ funds. The Christchurch-headquartered Williams previously allowed six-monthly withdrawals from three funds. But founders Matthew Horncastle and Blair Chappell wrote to investors in December saying the changing market meant no money would be paid out for a year.
The development business said it needs to keep the money for longer, documentation allows extended timeframes, and it was “prudent” to do so.
Williams Corporation Capital, Williams Corporation Capital Partnership and Williams Corporation First Mortgage Investments hold the funds in a type of quasi-bank arrangement, available only to wholesale or qualified investors in schemes.
As well, Williams’ staff numbers dropped from a peak of 204 people including contractors six months ago to 125 staff last month. Williams Corporation said in November that 24 people agreed to take voluntary redundancy in the face of a work slowdown. But in the week before Christmas, Horncastle said the company had completed the 30 per cent staff number cuts it had announced a few weeks ago.
Blair Chappell and Matthew Horncastle of Williams Corporation. Photo / supplied
“We have 125 staff currently so we have removed 80 since we started the downsizing process some months ago,” he said on December 23.
StatsNZ data showed that In the year to last September, 50,732 consents were issued for new dwellings, up 7 per cent annually. New dwellings consented in the year to last September were:
6902 in the rest of the North Island, down 10 per cent;
8718 in Canterbury, up 18 per cent;
4392 in the rest of South Island, up 11 per cent.
In August, the Herald reported how new housing consents granted nationally exceeded 50,000 for the fourth month in a row but a survey showed declining confidence from builders and architects.
The Construction Industry Confidence Report showed 59 per cent of builders and 46 per cent of architects predicted the sector to deteriorate even though StatsNZ’s data was continuing to show record numbers of new housing consents issued.
Last March, new housing consents surpassed 50,000 for the first time, hitting 50,964. In April, consents were issued to 50,688 new houses, by May 51,015 and in June, 50,731.
