Source: Radio New Zealand
RNZ
It could become more expensive to build a house this year.
Cotality, formerly known as Corelogic, has released its latest Cordell Construction Cost Index, which shows residential building costs increased by 0.9 percent in the three months to December.
The index is made up of 50 percent materials, 40 percent wage costs and 10 percent other expenses such as professional fees and consenting.
The annual pace of increase rose to 2.3 percent, but is still below its long-term average of 4.1 percent since 2012.
Cotality chief property economist Kelvin Davidson said the pace of growth was constrained.
“We are certainly not seeing the extreme inflation experienced in the post-Covid phase, when the [index] annual growth rate peaked at more than 10 percent in late 2022.
“During that period, there were supply chain issues for key materials such as plasterboard and rising wages also drove up costs significantly.
“However, although they’re not rising to any huge degree at present, costs haven’t seen significant falls either. Following the previous growth phase, the overall level of cost to build a new dwelling remains elevated even though the growth rate has cooled,” he said.
He said confidence was returning to the construction sector.
The number of dwelling consents has started to rise again, and reached 35,500 on a 12-month basis in October.
Davidson said that was a turnaround after a period of stagnation.
“After peaking at more than 51,000 in the 12 months to May 2022, the number of new dwellings consented dropped to a low point between 33,500 and 34,000. We are now seeing a recovery that aligns with anecdotal evidence that builders are becoming busier again.”
Activity would probably pick up with interest rates down, and rules such as loan-to-value ratios and debt-to-income rules making new builds more appealing.
“I don’t think we’ll necessarily see a big rise [in costs] because wages, the labour market is still relatively softer than it was a couple of years ago.
“You wouldn’t think there’d be large wage increases for the builders, but there might be a wee bit more pressure coming through there. And then materials as well, a wee bit more pressure, but again, not that returning post-Covid.”
He said activity could generally trend higher this year and cost pressures could return to normal.
Supplied/ Unsplash – Josh Olalde
Brighter outlook for construction firms
Things were looking up for construction firms, he said.
“There’s always going to be individual experiences and distributional effects in here, but what I hear on the ground and from people I talk to in the construction industry, there is a bit more confidence coming through.
“It takes a while, and it’s been a pretty big downturn for sure, and some developers have done it pretty tough, maybe buying land at the absolute peak value and then seeing interest rates go up and demand for that product come down, prices they could eventually sell it for come down… a big squeeze on margins when you’ve paid top dollar for land, the cost to build has gone up, the eventual selling price has come down. It’s been pretty tricky.
“Some people have obviously done it pretty tough, but I guess the other thing I think you also have to acknowledge is that, yes, it’s been a big downturn, but it was coming off an incredibly high base. So, actually, in the long run context, we’re still building a decent number of properties compared to what we’ve done at the previous troughs.
“So, you know, it’s not all doom and gloom, but at the same time acknowledging that it has been tricky for a lot of builders.”
A period of slower construction cost growth was good for homeowners potentially committing to a build, he said.
“If you sign up for something off the plans and it’s not going to be ready for 12 or 18 months, at least you can kind of have a bit more confidence that it’s not going to run away in the meantime. I think that a bit more stability is probably what people have been hoping for.
“And that is kind of what we’ve seen in the past sort of year or two… I think a lot of people would probably say it’s still expensive to build a house. But the growth rate hasn’t been as fast. So, you know, things have stabilised, have plateaued. And I guess, you know, with interest rates coming down, it just does get a bit more affordable.”
There was a premium for a new build compared to existing houses, he said, but that could reflect the fact that maintenance cost should be lower and the property could be built to higher specifications.
“It stands to reason that new builds will cost a little bit more than existing properties, but then there are those benefits too.”
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