14 Oct 2022

Construction costs for new homes rise by record 9.6% over 12 months

7:19 am on 14 October 2022
Bremner Ridge housing development, Flat Bush, Auckland

Rising timber and metal prices are some of the key drivers of cost pressures. Photo: RNZ / Marika Khabazi

The cost of building a new home is rising at its fastest rate on record but signs of relief are emerging on the distant horizon.

Property research firm Core Logic's Cordell Construction Cost Index (CCCI), which measures the cost of building a 'standard' three-bedroom brick and tile house, rose by a record 3.4 percent in the three months ended September, compared with a 2.6 percent increase in the prior quarter.

The annual growth rate also hit an all-time high of 9.6 percent, eclipsing the previous record set in the second three months of the year.

"Overall dwelling consents are now declining year-on-year; however, costs are still a problem," CoreLogic chief property economist Kelvin Davidson said.

He said demand for a range of materials continued to outstrip supply within the construction sector.

Rising timber and metal prices, which were affecting framing and reinforcing, were some of the key drivers of cost pressures, he said.

Labour costs, which represent about 40 percent of the CCCI, have also jumped, he said.

Davidson said increasing building costs also affected existing home owners.

"If you had an unfortunate event happen to your house and you had to rebuild, [it is] very, very important to make sure that you keep your home insurance right up to date with the latest rebuild costs."

Improvement seen for 2023

Looking ahead, Davidson said he would not be surprised if costs rose by double digits by the year's end before easing in 2023.

"One encouraging development in the past month or two has been the improvement in supply chain conditions, with plasterboard for example now much easier to find."

The wider slowdown in the property market, brought on by rising interest rates, tighter lending rules, and the sheer unaffordability of property, would also cool demand, he said.

"This easing in cost growth will be very important in the longer term so developers and households aren't dissuaded from taking the new-build path which critically assists in boosting overall housing supply," Davidson said.

The CCCI was based on the comprehensive collection of labour, material, plant hire and subcontract costs covering all major trades.

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