First home buyers could be priced out of new build market, experts say. Photo / Getty Images
Problems plaguing the building sector could be putting first-home buyers' dreams of getting on the property ladder further out of reach.
A property economist warns escalating material costs, supply chain woes, labour shortages and land issues could drive up the price of building despite consent numbers for residential dwellings being "off the charts".
Builders say the uncertainty is making it harder to price projects accurately, while banks say they are seeing more variability clauses in contracts but do not expect mortgage numbers for new builds to fall.
CoreLogic chief property economist Kelvin Davidson said building consents were "off the charts" but new activity could be stifled if people couldn't afford to build anymore.
Figures show for the year to end of July the number of dwelling units built in New Zealand hit 45,119 while in Tauranga it was 1536 and Rotorua 260.
Davidson could not see activity or material price pressures easing "anytime soon".
That could affect the number of houses needed to keep up with supply and demand.
"That keeps housing affordability at a worse level than it otherwise would be ... there are some big issues out there."
Classic Builders director Peter Cooney said he was "very concerned about where prices will go" in an industry "that is peaking in consents".
The company had changed the way it released house and land packages onto the market to try and capture the increases.
"This obviously reduces the stock we release at any one time. We ensure we have long-term contracts with suppliers and liaise closely with them to establish timings of price increases."
Venture Developments director Mark Fraser-Jones said larger-scale projects were now becoming much more complex to price.
"The industry could usually expect price rises to happen annually, they are now happening almost monthly; there is also no indication these prices rises are easing. Ultimately it is just making homeownership that much more difficult for anyone looking to get on the ladder."
Barrett Homes national sales and marketing manager Lianne Simpkin said building companies had no say over the increasing cost of land and inflated cost of building supply materials.
"We must seek options to secure land and supply agreements that hold true value."
It was difficult to share the risk and this would put "numerous" building companies under duress.
"We have had to delay the sale of house land packages until titles are close - which has a flow-on effect with fewer house land packages to the market."
In her experience, the First Home Grant price cap for the Bay of Plenty did not match the cost of house and land packages on the market and had not for some time.
"This translates to the unaffordability for new home buyers. This needs to be reviewed at the highest level to enable first-home buyers every kiwi's dream – homeownership," she said in her view.
Generation Homes chief executive Kevin Atkinson said people were rightly nervous about building a new home because of the rising costs and difficulty of supply for materials.
The company was continuing to offer a fixed price and guaranteed delivery date.
"There's reassurance and risk reduction to be had from signing a fixed-price contract.''
Chris Rapson, the owner of Rapson Loans and Finance, said the housing market was changing every day.
In his opinion, however, building or buying a home was worthwhile.
''Once you have that property and you are paying the interest on your loan and repaying that debt, the value of that property will be more than you paid. The sooner you get on the property ladder, the better off you are going to be.''
In Tauranga, the city council confirmed last week nearly 300 of 700 consent applications in July/August were over the 20-working day timeframe.
More than two-thirds were on hold pending responses from applicants.
Last week the Government announced tax rule changes Finance Minister Grant Robertson said would tilt the balance of the property market towards first home buyers.
"Tax is neither the cause nor the solution to the housing problem, but it does have an influence, and this is part of the Government's overall response."
The rules would bar landlords from deducting the interest costs of their mortgage from their tax bill, but "new" houses would be exempt.
Kiwibank borrowing and lending senior manager Richie McLay said it was aware of the pressures on the construction industry and the impacts on fixed-price contracts.
The bank reviewed each deal on a case-by-case basis to assess the clauses in the contract add contingencies where appropriate.
"This is to ensure the customer can service any additional costs that may arise as well as sufficient equity at the end of the build."
Given the significant pipeline of construction in-train Kiwibank wouldn't expect to see a major fall in numbers of mortgages on new builds, he said.
"In addition, new builds are exempt from lending restrictions such as loan-to-value ratio restrictions that are expected to weigh general mortgage lending in the months ahead."
A Westpac spokeswoman said it had helped first-home buyers to purchase 3245 homes in the six months to the end of August - up over a quarter on the same period last year.
The bank's policy settings around new builds had not changed but for loans above 80 per cent LVR it generally required a fixed price contract.
"This is to reduce the risk to the buyer of cost overruns but we review each application case by case."
Westpac encouraged customers to do due diligence around their chosen build, including ensuring they were dealing with a reputable builder.
"We also support innovative building methods such as offsite construction, which can be cheaper, faster and more efficient than a traditional build."
A BNZ spokesman said it was beginning to see more contracts that include clauses allowing for more variability for builders.
"In each case we work with customers on a case-by-case basis to ensure we can lend responsibly and that they have sufficient buffer for possible cost overruns.''
Sydney's Vow Group plans to use cultured quail in various products.