Source: MIL-OSI Submissions
Source: CoreLogic
CoreLogic NZ’s Cordell Construction Cost Index (CCCI) for Q2 2022 showed national residential construction cost pressures have continued to escalate, with both quarterly and annual rates of indexed growth reaching new record highs.
The CCCI indicates the cost to build a ‘standard’ 200 sqm three-bedroom, two-bathroom single storey brick and tile house in Aotearoa rose 2.6% over the quarter, lifting annual growth to 7.7%, the largest increase since the CCCI commenced in late 2012.
CoreLogic Chief Property Economist Kelvin Davidson said the CCCI figures further support the evidence that the industry is under immense cost pressures, with no reprieve expected in the short term.
This indexed model of construction costs allowed for standard build times, Mr Davidson said, acknowledging that completion timeframes had lengthened lately as some materials remain hard to procure.
“This is the swiftest rise in the NZ CCCI we’ve seen in a decade, and I don’t expect these price pressures to ease for at least another couple of quarters, given ongoing materials shortages and labour pressures,” he said.
CoreLogic Construction Cost Estimation Manager, John Bennett, said rapid recent cost growth has impacted a range of different trade categories and components in residential construction.
He said metal prices continue to be affected with further rises to reinforcing, fixings and fittings. The cost of metal also has an impact on fencing and garage doors, as well as the aluminium window industry, with substantial increases for those products, too.
“The effect of higher timber costs also continues to flow through the market. We are seeing knock-on effects into different industries, such as landscaping supplies and kitchen cabinetry. Imported products, particularly metal based items and tiles are rising, as well as cost hikes from consultancies, affecting preliminary costs,” he said.
“It is important to note that other pressures are at play on the industry, with labour availability and overheads impacting costs. Labour availability can also affect build times, and can leave builders more exposed to market changes and holding costs. It really is a perfect storm.”
Mr Bennett also stressed that the CCCI is based on detailed cost surveys. “It’s important to note that with about 40% of the index/model representing labour costs – which have been rising, but not as quickly as some materials – this is one reason why the CCCI is showing slower overall building cost inflation than might be the popular perception.”
The CCCI indicates that new dwelling consents have continued to hover around 50,000 on an annual basis, driven by smaller dwellings such as townhouses which now equate to more than half (51%) of all new consents nationally – a record high. In Auckland, that proportion has surged above 70%.
Mr Davidson said while smaller dwellings may require fewer materials, the volume in the pipeline indicates there will likely be no respite for the stretched materials supply chain – nor for labour capacity.
He said in turn, this is showing up as continued pressure on construction costs, especially when accounting for alterations/renovation work and non-consented activity too.
“Looking ahead, it wouldn’t be a surprise if cost pressures get worse in the next quarter or two, potentially pushing up towards double-digit indexed growth, before they start to slow later as builders’ workloads potentially ease off in 2023. But we’d also be a bit more confident than in the past that the wider construction industry won’t go from boom to bust,” he said.
“After all, the loan-to-value ratio rules and tax system now favour new-build property, both for owner-occupiers and investors. A higher ‘normal’ level of demand for new property than we’ve seen in the past should give developers confidence about future market conditions.”
CoreLogic researches, tracks and reports on materials and labour costs which flows through its Cordell construction solutions to help businesses make more informed decisions, estimate rebuild and insurance quotes easily and, ultimately, appropriate risk effectively.
The CCCI report measures the rate of change of construction costs within the residential market for a typical, ‘standard’ three-bedroom, two-bathroom brick and tile single storey dwelling.
For more information or to read the report, visit www.corelogic.co.nz/reports/cordell-construction-cost-index
About CoreLogic
CoreLogic NZ is a leading, independent provider of property data and analytics. We help people build better lives by providing rich, up-to-the-minute property insights that inform the very best property decisions. Formed in 2014 following the merger of two companies that had strong foundations in New Zealand’s property industry – Terralink Ltd and PropertyIQ NZ Ltd – we have the most comprehensive property database with coverage of 99% of the NZ property market and more than 500 million decision points in our database.
We provide services across a wide range of industries, including Banking & Finance, Real Estate, Government, Insurance and Construction. Our diverse, innovative solutions help our clients identify and manage growth opportunities, improve performance and mitigate risk. We also operate consumer-facing portal propertyvalue.co.nz – providing important insights for people looking to buy or sell their home or investment property. We are a wholly owned subsidiary of CoreLogic, Inc – one of the largest data and analytics companies in the world with offices in New Zealand, Australia, the United States and United Kingdom. For more information visit corelogic.co.nz.
About CCCI
The Cordell Construction Cost Index is based on building models, representing a typical standard (three-bedroom, two-bathroom) domestic dwelling. The models are for a standalone application, using materials, trade practices and applications that would be considered standard building practice.
Bespoke or specialised style construction or materials are not presented in this index and may vary from the price indicators. Standard build times are allowed but does not take into account delays or associated costs due to longer times.
The changes in prices are measured daily through the use of detailed cost surveys, and are reported on a quarterly basis, with a view to ensuring the most current and comprehensive industry information available. The models have an approx. representation of 40% labour, 5% preliminary, 5% plant and 50% material.
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