Building costs are rising faster than inflation.

The cost of building a new home can be eye-watering. Auckland Council and other agencies such as Watercare Services will do liposuction on your wallet before the first turf is turned.

Matt Lelean of GJ Gardner is witnessing the cost of building rise almost weekly. Some big costs, such as development levies, health and safety requirements, and tens of thousands of dollars just to connect to the town water service didn't even figure when Lelean built his first home 20 years ago.

That home cost $850 a square metre.

Advertisement

"The average build price in Rodney is $1750 a square metre (now)," says Lelean. Some of the increase is because of inflation, he says "but the fixed costs we have to spend have increased".

Red tape and rising section prices are pushing house building costs up.

"There is between $40,000 and $60,000 fixed costs before the customer even gets off the ground."

Lelean says Health and Safety rules add about $10,000 for each build. These costs escalated in 2012 when WorkSafe New Zealand began enforcing provisions in the Health and Safety in Employment Act to prevent workplace falls. It requires additional scaffolding, nets, and site fencing, says Lelean.

Lelean adds that Watercare's infrastructure growth charge, applicable to new connections, range from $13,000 to $28,000 in his patch of Rodney.

"That is a fairly significant cost up front to put a water meter in."

Resource consent, says Lelean, tacks on about $3000 to $5000 to the cost of a build and building consent in Rodney is about $5000. "In most new subdivisions you also have to have an E1 pump, which costs around $10,000. You can't just hook into the sewer," he says.

The Ministry of Business Innovation and Employment's (MBIE) National Construction Pipeline Report 3, released in July, confirmed that the cost per dwelling is rising.

Advertisement

One reason is because individual houses in New Zealand continue to get larger and are therefore more expensive.

The average house size, says Gary Caulfield, general manager of Construction Cost Consultants, has almost doubled in recent years. Our new houses are some of the biggest in the OECD.

It's no longer economically viable to build a small house on a standard section, because that's not what buyers want. "There is a bare minimum value of house to put on that piece of land to get a reasonable return," says Caulfield.

The MBIE report noted that part of this costs surge is because of a demand for better quality, which costs more per square metre to build.

Lelean sees this on the ground. "There is an expectation of higher product performance."

Home-buyers are also demanding better looking, more expensive products. "Their expectations are higher than they were 20 years ago and they expect better quality insulation and better quality double-glazing and that they are environmentally friendlier, warmers and more efficient."

Of the increase in materials, around one-third was because of changes in the nature of materials used -- such as improved double-glazing to meet revised thermal efficiency guidelines in the Building Code.

The Productivity Commission's 2012 report on housing affordability in New Zealand found that over the previous 25 years, growth in residential construction costs had averaged 4.3 per cent a year, which was higher than CPI growth at 3.5 per cent.

During the last housing boom from 2003 to 2008, construction costs grew at an average annual rate of 5.8 per cent, compared with CPI growth of 2.1 per cent a year.

In real terms, construction costs had increased by 30 per cent, the report said.

All of the major building cost imputes had increased including:

• Materials

• Contractors' and sub-contractors' labour

• Consent fees, building levies, drawings and occupational health and safety requirements.

It also noted that the growth in construction costs was closely tied into the period of house-price growth, suggesting that rising costs were correlated with a rising property market.

While in recession, when there was less demand for labour and materials, costs didn't rise at the same rate, if at all.

Lelean says tradies know they are marketable and are looking to increase their hourly or square metre rates. Suppliers, says Lelean, also seem to be raising prices fractionally above the rate of inflation.

This could get worse, with the MBIE report predicting 80,000 new homes will be built in Auckland by 2020 compared with 30,000 in the past six years.

Caulfield, who as a quantity surveyor must track construction costs, is expecting the growth in construction costs to top 6.5 per cent this year.

The Productivity Commission also found that building materials for a modest specification home built by the same company were significantly more expensive in New Zealand than in Australia.

WHERE THE MONEY GOES ON A NEW HOUSE

Clear site...............................................$1818.15
Building work...................................$338,458.88
Drains and external works..................$26,619.05
Whiteware ............................................$6686.10
Fencing...............................................$21,456.70
Sundry....................................................$1541.00
Builders Margin & Profit.....................$47,589.59
Consent...............................................$18,559.15
Design.................................................$27,840.70
Development contribution..................$23,000.00
Water connection...............................$13,800.00
Subtotal............................................$527,369.32
Total ex section................................$527,369.32
Section..................................................$250,000
Total including section.....................$777.369.32

• Prices include GST

Source: Productivity Commission Housing Affordability report.