9 Apr 2024

Building cost inflation slows to lowest level in eight years

12:09 am on 9 April 2024
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Builders have been experiencing a decline in their pipeline of work. File photo. Photo: 123RF

Building cost inflation has slowed to its lowest level in eight years, as liquidations also rise.

The latest Cordell Construction Cost Index (CCCI) recorded a 0.5 percent increase in the first quarter of the year, less than half the long-term quarterly average of 1.1 percent.

The annual change of 2.3 percent was well down on the peak of 10.4 percent recorded in the September quarter last year, and is the lowest rate in almost eight years.

CoreLogic's chief property economist Kelvin Davidson said that gave more certainty to people building new homes and doing renovations.

He said builders were experiencing a decline in their pipeline of work.

"We do know that workloads are slowing and also anecdotally we're just starting to see those concerning reports about a few more builders going into liquidation," he said.

"The near-term indicators are that that will continue.

"We just have to hope that at a time when population growth is very strong off the back of net migration that building consents find a floor soon and that the construction industry can start growing again soon."

Davidson said on a rolling 12-month basis, New Zealand's dwelling consents peaked at more than 51,000 in May 2022.

"Most costs have stayed relatively stable since the end of 2023 and the CCCI has recorded no significant movement across any particular product or labour rates, which can account for up to half the cost of a new build, excluding land."

Davidson said the normalisation of construction growth rates would benefit both builders and consumers following unprecedented industry volatility, resulting in construction costs being 25 percent higher than pre-Covid levels.

"That big issue that we had around Covid with plaster board and these sorts of things has eased right back."

Davidson said it could be at least two years before any change from the government's fight for lower building costs was seen by consumers.

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