Residential construction costs appear to be flattening out after a period of strong growth, potentially signalling the end of high cost growth in the building sector.
Interest.co.nz's Residential Building Consent Analysis Tables track the average build cost per square metre from all residential building consents issued throughout New Zealand.
These show average estimated build costs for new homes (excluding land), remained relatively flat at around $2350 per square metre throughout 2020, and then started rising steadily in the first quarter of 2021, peaking at $3124 per square metre in the second quarter of this year.
That puts estimated build costs in the second quarter of this year up 12.7% compared to the second quarter of last year and up 27.3% compared to the second quarter of 2021.
However although costs were still rising in the second quarter of this year, the rate of increase had slowed significantly, increasing by just $33 a square metre (1.1%) between the first and second quarters of this year. The graph below shows the quarterly trend.
The tables also break down build costs by dwelling types and this showed the estimated build costs for stand alone houses and apartments declined in the second quarter of this year, while costs for townhouses/home units and retirement village units continued to increase.
The estimated build costs for houses peaked at $3075 in the first quarter of this year, and then declined by $63 to $3012 in the second quarter (-2.0%).
Apartment build costs tend to be much more volatile which makes their trends less obvious, but they peaked at $5408 per square metre in the second quarter of last year and had retreated to $4444 (-17.8%) in the second quarter of this year.
Estimated build costs for townhouses and home units peaked at $3083 per square metre in the second quarter of this year, up 8.0% on the first quarter and up 17.0% on the second quarter of last year.
Retirement village units showed the biggest cost surge, peaking at $3611 per square metre in the second quarter of this year, which was up 27.9% on the first quarter of this year, and up a whopping 54.7% on the second quarter of last year.
The tables also break down building consent cost estimates by dwelling type nationally and for each of the main urban centres of Auckland, Waikato, Bay of Plenty, Wellington Canterbury and Otago - the tables can be accessed on our Residential Building Consent Analysis page.
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55 Comments
Build costs, both material and labour, need to fall not flatten. You can’t have a 50% increase in 3 years and expect everything to keep ticking along.
I spoke to a few lenders yesterday and until things stack up their books are closed. There are going to be a lot of people with not a lot to do in 2024 unless something changes.
I am still picking some form of GFC 2.0.
The GFC was the result of over lending to unsuitable lenders. Since then, lending requirements have ratcheted the other way, which is partly why there's a lot more resilience in the mortgage market, and why we've not yet seen a big wave of defaults.
So if something happens, it'll be fairly different to the GFC. A whole new act, maybe just with GFC like conditions singing backup. Not that build costs plumetted during the GFC either, it just resulted in a lot less building.
It'd be surprising if you saw more than a 15-20% fall in building costs (10% and the builder/tradies will just stay at home). Unless you also fundamentally changed what and how things were getting built.
The biggest impacts of the GFC were because credit became unavailable. That’s expactky what we are seeing now, albeit for a different reason - risk/reward is mispriced.
No defaults? There are plenty offshore. In NZ they are being managed just like during the GFC.
You're talking about the effect though, not the cause. It's like saying every car crash that deploys an airbag is the same. Drunk dude going 150ks is a different mess than someone just not taking a suburban roundabout properly.
Aussie builders have and are dropping like flies, NZ will likely follow, but Aussie got an even larger profitless building boom thanks to government juicing new builds and renos when the pandemic kicked in.
No, the GFC happened not because they lend to unsuitable borrowers, it happened when the borrowers' interest payment suddenly jump to a unaffordable level after their teaser rates finishes.
and today, the interest has jumped so much, and suddenly we have a big chunk of mortgage holders find themselves cannot afford it any longer, which is a reason of concern.
I thought you also had a Huge bank account as well. Why are you talking to lenders
It’s part of my job to speak to property lenders.
I agree. You can't have mortgage interest rates fall from 9% in 2008 to 2.5% in 2021, a huge increase in borrowing/purchasing power specifically to one sector of the economy, and not expect material/labour margins in that sector to increase dramatically to capitalize.
Isn't there a lot of cyclone Gabriel/Akl floods to pick up the slack?
Funny looking building, does anyone know what the series of triangles against the wall are doing, part of the roof structure? I count 9 or 10
Yeah, it's a roof cavity and where the triangles stop, theres a dormer window.
Looks like that roof pitch loses quite a bit of floor space.
They're always a compromise, you lose a lot of ceiling height more than anything. Shove the kids up there.
Maybe a steep pitch for snow shedding. Is that snow on the floor? 99.9% sure it’s not a local site.
I think it's insulation and general work dust/shavings
Maybe the article pics need a Where's Waldo angle
I'm guessing a stock photo from 123rf or similar site, it's all over the Internet.
It's a North American build. Notice zero Nogs and zero treated lumber inside. The build is sheathed with OSB - which is how 90% of homes are built in the states/canada.
I suspect that it’s an overseas photo from a building which will be exposed to high wind loadings, likely an area which is at risk of Hurricanes etc. Looks like they’re dispersing the wind loads back to the central framing and slab.
It's a north American pic of house notice no nogs/dwangs thru the framing also all the chip board on the exterior walls like someone said it's either a roof or dormer cape cod kind of house
When do the insulation and glazing standards begin. Increased build costs are not entirely comparative because of changes to regs
1 may 2023??
These changes fell into this reporting period and strangely some new build costs dropped.
I heard that the changes were more far reaching as the extra insulation meant bigger/deeper wall framing. Extra material, transport and possibly more labour too.
Yep alot more exspense involved most exterior walls now need to be 140 by 45 walls for thicker insulation also dble the amount of insulation in the ceiling and so it goes on
Had to buy some fence palings a few days ago, the first time in ages, got a big surprise at the prices.
Obviously buying in bulk is better
These are another reason why the residential construction sector will tank.
The numbers are a crock. Total joke. It’s actually corrupt. One of the worst kept secrets.
Basically, lower than credible costs are quoted in the building consents. There’s a couple of reasons this is done, including incurring lower council fees.
Add at least 25-30% to these ‘official figures’
The other aspect that's hard to factor in is offset profits between building costs and land sales. I know a few bulk house builders who might only make 3% margin on the build, but a hundred grand or two selling the section with it
Surely you're not suggesting my neighbour's mid-high spec 480sqm house cost more than $1712.50/sqm to build in 2021?
I think of them like Council CVs, it’s the relativity that’s important.
The cost to build a residential home is now part of the very broken real estate problem. Vendors and agents use the cost of building to keep list prices high “You try to build this house now”. Mean time those who have built recently have had their registered valuations come in at way less than the build cost ( a friend of mine lost $350,000 on a fairly modest home - cost to build vs registered valuation). It’s a stalemate.
In years gone by building was a real option that ran along side the option of buying an existing house. This has now gone and in our area the list of sections for sale keeps growing ( that’s not from new subdivisions, it’s just those holding them now trying to cash up).
Much of the blame of the now outrageous building cost rests with the building industry. For two years we have not been able to get quotes even for smaller jobs, just have had to accept time and cost. Crazy reasons have been offered for price rises - last time I had a house costed - just over 12 months ago, the basins and baths were being airfreighted in as shipping was so jammed up and expensive post COVID. I now understand that shipping costs are back to prepandemic, but no correction in any of these prices.
As with the broken real estate market, greed has reigned supreme in the building industry and we, New Zealanders, have now opted out of both.
Well put. The building industry itself is the biggest problem. Rorting, laziness, cronyism and lack of innovation
It's also regulated by multiple external bodies it has to satisfy. The cost to scaffold a roof is often more than the cost to recoat it.
Oh, and architects and designers designing things with no idea how to actually build them. Then wondering why it's so expensive to have a builder try to work it out as they go.
Councils have urban design team panels that scrutinise your design. They send it back with contradictory comments.
We've had several sites recently where *insert govt department authority* has turned up, scrutinised and shut down works because they're not being done to said departments conditions, whilst also being done 100% true to design, which was approved by the same department.
Hire a bunch of people tasked with finding fault, and they'll find something, it just may not be overly useful.
Easy to blame everything but themselves. Have a read about NZ Living some time, hear them speak - very critical of the sector. Despite bureaucratic hurdles, they have found a way to build good quality apartments at around 30% lower than most of the market. Through innovation and efficiency.
Great comment. IMHO the building industry needs a recession as a reset.
It'll drive out the marginal operators and newer employees, for sure.
I'm still getting quoted $500/day for an apprentice.
$64/hr + GST for the apprentice sparky lately. $86/hr + GST for the sparky himself.
$90/hr + GST for the plumber.
Probably within range, some backwards maths has that making the employer $300-$400 a week off that, which isn't a lot to be a babysitter.
I'm not sure how cheap people think it'll be able to go.
Care to explain the math
Apprentice will be on min wage. As long as not fresh out of school then their time will be charged out
Holidays and acc probably another 20 percent all up
Still leaves >35 per hour def not 10 per hour
They're often on closer to $30, not minimum. Otherwise people would rather push supermarket trollies.
Plus tools, transport, insurance, sick pay, holiday pay, ACC, KiwiSaver, holding costs (weekly wage vs up to 2 months credit). If someone can make more than $10-$15 an hr running trade workers on wage they're doing well. Or maybe they're a plumber or sparky, higher margins all round.
"Push supermt trollies..."
What happened to the 70s when there were young guys coming out of school and becoming builders
Now they dream of being an online trollie
What happened to the 70s when there were young guys coming out of school and becoming builders
They all want to crack it by riding a keyboard instead.
Couple weeks back an apprentice wanted to be assigned a different job than digging fence post holes. Too hard, didn't like it.
Yep why I will not employee any apprentices now. Had one say to me that I couldn't talk to him a certain way. In the end no stress just going at my pace and doing everything myself
Painter isn't it strange how everyone thinks their hourly rate income is deserved and hard worked for yet everyone's in a job that person can't do is getting paid way too much. Pretty much like the people that want completion so they can get a cheaper price just not completion in their industry
And if they tried their hand at whatever they think is too expensive.....
They'll end up being productive at about 10 bucks an hour
Competition bloody phone
Why can't councils insure against liability, thus making them more willing to bring in proven offshore building products?
In other words, f**k fletchers
Proven in other markets.
Notice cars driving round that are going pink when they should be red? That's because our UV breaks down tints and coatings like no other.
20 years ago they started bringing in English exterior cladding, some sort of composite palava involving compressed cardboard. After 10 years, she's all delaminating, company shut up shop in NZ, many house owners now sad Pandas indeed.
Just started 40 odd KO townhouses in 2 sites in Rotorua, $3500/m2 + GST.
Last time I did that many townhouses m2 they were on the coast in Mt Maunganui $3100/m2 + GST in early 2019.
So 13% increase for lower KO spec interiors and higher spec windows and insulation over 4.5 years = 2.89% p.a.
Not really apples for apples comparison. I could up the interior spec on the KO townhouses for less than $500/m2 to match the older build and the m2 rate would have gone up 29% over 4.5 years ($3100/m2 to $4000/m2) = 6.44% p.a. increase.
Our materials peaked in May 2022 and my timber/sheet rate is down 25% since then. Labour peaked around then too and has retreated $5-7.50/hr (10% ish) over the last 6 months. My labour and material costs are only 20-30% of a townhouse contract value however.
Builders who value their clients and long term relationships/repeat work are still providing value (commercial world). Builders who are in it for short term gain and want to rape and pillage their (1 off) clients will fast run out of work (group home builders).
Great comment with good maths. Thanks.
Where abouts are these? I'll drive by for a peek :-)
Industry has little forwards work. Belts are being tightened. "Toys" are being sold.
Wow where are you. Can't get exterior windows doors till next yr. And that from all the joinery companies in the Sth will be getting onto 10 weeks fingers crossed to get trusses.
Facebook some months ago builders 'won't get out of bed for anything less than $100 per hour'.
So much price fixing going on too.
Clearly no business heads on some. Price themselves out of the market grinding construction to a halt.
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