Residential construction costs continued to moderate in the third quarter, dipping well below their 10 year average according to the Cordell Construction Cost Index, compiled by CoreLogic.
The Index monitors the cost to build a stand alone, three bedroom/two bathroom house, which increased by 0.5% in the September quarter of this year.
That was down from a 0.6% increase in both the March and June quarters, and was the lowest quarterly building cost increase since the fourth quarter (Q4) of 2020 when it was 0.4%.
That pushed the annual rate of increase down to 3.4% over the 12 months to September, well down from the annual peak of 10.4% in Q4 last year.
It also means annual building cost growth is now running well below the 10 year average of 4.5%.
The Cordell report said the industry had entered what it described as a "much more subdued phase for construction cost inflation," following an easing in the supply chain disruptions that occurred in 2021 and 2022, and the wider slowdown in new residential consents and actual construction workloads.
While the cost of many building components remained flat in the September quarter there were also scattered increases and decreases across both metal and timber products.
Much of the increase in costs had come from ongoing wage growth, with labour typically accounting for 40% to 50% of a project's total cost.
"Looking ahead, it seems likely that new dwelling consents will fall further and that actual construction workloads will also continue to moderate over the next... two to three years," the report said.
"This will keep some kind of restraint on construction costs too, as capacity in the industry slowly starts to open up again, although the migration flows (both in and out) of builders will need to be watched closely.
"On balance, it wouldn't it wouldn't be a surprise to see the quarterly rate of change in the Index continue in the vicinity of 0.5% for the next few quarters," the report said.
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38 Comments
The greed in the building industry is beyond comprehension.
Margin on Margin on margin,
Another cartel at its worst.
There are 100 of thousands of dollars to be saved now in the Building industry.
One example is cedar weatherboards have come back $50k in three months on a house lot that's one component.
And to think National want to wind-up this Ponzi again Bad Bad move.
How has everyone got so greedy in this country and National want it to continue.
How bigs the house? Cause the total materials bill to clad a 200m2 cedar house should be around $20-25k. Unless it's some fancy pants architectural build using exotic bespoke cedar.
Hundreds of thousands to be saved? How possible, if labour alone comes to half.
The margin on a new house is about 3-5%. Some commodity items had increased, and now can be bought at a slight discount as there is some over supply going on.
I'd suggest most of the price rationalisation is more dictated by the larger ratio of lower end houses being built currently than 2-3 years ago.
Been in this industry for 30years so know it very well.
Talking Medium to higher end homes which have Cedar on them.
In the GFC Cedar weatherboard went down to $8.00 per metre recent pecked at $52.00 per metre this is how over priced the industrys become and they are all doing it they ramp through the cycle.
You are way out on your $20-$25k to clad close to that in 2008.
The industry is working on far bigger margins than 3-5% with all the ticket clippings and add ons.
Doing two projects at the moment and there is up to $200k difference in pricing some have work some have no work.
This is how bad it has become on the back of greed and cartel behaviour.
Thankfully looks like the com/com are onto it.
But the right will try and keep it all going dumb.
You've been in building for 30 years and don't know how timber pricing works?
200k over how big a property?
Painter
200k over how big a property?This is just the Civil works on a commercial property.
Your are way out of touch and don't understand the industry.
I would say a baby boomers who votes National.
I'm in my 40s and am currently at my keyboard pricing an industrial facility.
Timber prices are heavily impacted by demand/supply fluctuation, because you have upstream/downstream complications with felling and milling capacity, dramatically increasing or decreasing supply is not a quick process. So something like covid, is going to send board prices crazy.
200m2 house is 60 lineal metres of perimeter wall roughly, 600 lengths of timber at 2.5m lengths, at 10% wastage is 1650 lineal metres of cedar. At like $20-$25 bucks a metre. To save 50 grand on cedar, the house has to be huge, or using fancy pants cedar.
So when you said people could save hundreds of thousands on their build, you were referring more to large commercial enterprises than a home owner.
So you are trying to cover your bum like the rest of the industry.
If you are a builder which I am not it surprises me you still want to be in the industry.
Most of the top end builders I know want out as they are sick of the compliance and the price gouging.
No, but I've been involved in pricing works for a very long time, either directly, or in an oversight capacity (i.e. evaluating tenders). If there's 6 tenders, 3-4 are going to be within earshot of one another, one will be rogue, and one will be ridiculously cheap. More often people will go for the cheapest, then wonder why the end result is so bad - because there's only so much you can cut out of a price.
There's quite a lot of work I stay away from, mostly residential, because there's no profit to be made there. It's dominated by large house building companies who make virtually no margin on the build, hoping to make it up selling sections. They pay the lowest for labour and materials, and the end quality reflects that.
So I guess from where I sit, I don't see the same capacity for huge discounts like you do.
Agreed with what you are saying here.
Are you spending your own money?
You need to shop and negotiate harder as there are real savings out there now and will only be better over the next 12 months.
I have just done that $200k better over a professional Q/S on quality supplier so the industry needs to wake up.
I'm conducting the work, so I have to pay for the labour and materials to generate the end result.
About the only area I see where people might find significant savings is buying materials where there has been an oversupply - i.e. there was a covid shortage, manufacturers greatly upped their production, and now the demand has waned so the stock has to go. Likely only a short term thing though, as manufacturers lower their output back down. This is often called the bullwhip effect.
Civil works you might get a discount also, as it's a lot more capital intensive and the owners have to put it to work.
Labour pricing though, I can only see going up. Lot of builders wanting to bail as you say, and newer workers are usually far less efficient.
As you mention managing material supply is a key cost control area (to avoid supply & install package margins), but then you need to get the right labour only installers involved and have good relationships with them, and have a more active role in managing the trade package overall.
A good capable foreman or site manager is key for making this work and they are still rare as hens teeth and getting rarer, not sure of others experience.
You said it.
The cost of building has a decent number of variables, but ultimately the resources on site can dramatically alter costs.
In our case, a 195m2 house, brick clad - $40,000.00 for timber of all types
Its the TA & professional ticket clipping at the front end of projects gets me, BC fees, Development Levies, Connections, Lawyers and Land cost.
The build cost just gets squeezed down to a smaller portion of the pie chart.
This is the width and breadth of our economy.
Where the record of what you do, is more valuable than what you've actually done.
100%, its ridiculous.
I agree, have built in 2009 - costs were expensive but we thought ok, large renovation in 2019 that dragged on through covid - these costs were really unreasonable. Costs became astronomical, firstly with labour rates then materials. We have been looking to buy a house and it’s obvious that we should just build but we won’t because it is so overpriced to build. You just have to watch a TV show made in Australia or UK that involves building two know that we pay way way more here for any work on our homes. I would love to build but won’t consider it until prices actually significantly decrease…. Not just a decrease in the rate of increase.
Per square metre costs to build in the UK and Aussie are virtually the same as here.
You are joking?
If not you are so far out of touch on residential it’s not funny.
I'm not. I know people in building in both other territories (and a few others), and the square metre rate for residential doesn't have a lot of variance, like for like. If it's architectural, or in a fancy neighbourhood though, all bets are off.
That’s rubbish.
Typically at least 20-25% lower in Aus than here.
sure, perhaps less difference on very high end stuff.
A quick Google search suggests Australian prices are roughly $1300 to $1500 SQM for a 3 bedroom. NZ is $2500 per SQM.
Always mindful of using Google searches as the basis of fact, but maybe "anecdata"? I'm a Civil Estimator not Residential so unsure of the true numbers.
House building costs in Aussie have risen 30-40% in the last couple of years, so much of the pricing information you see on Google requires a De Lorean to obtain.
Also worth noting is the comparitively higher number of larger house builders going under in Straya.
Maybe I'm using non-trustworthy sites? Where are you getting your data from?
September 2023:
https://propertyupdate.com.au/how-much-on-average-does-it-cost-to-build…
Average 3 Bedroom = $1300 for Weatherboard. $1600 - $1900 for Brick.
I know plenty of people in the industry over there. Those numbers are way too low.
But as I say higher up, it’s still at least 20-25% cheaper to build there than in NZ.
Good luck at doing it at $2500 sum also.
I got a couple of people that can do it for 2600.
But if you want stuff like a driveway, deck and garden keep going.
Agreed, Try $5000 PSM
Aussie and England are high wage countries. NZ is a low wage country - primarily due to the tourism industry (which pays consistently low wages).
Most tradies in the UK earn less than NZ. Historically this is because they have had a steady pool of cheap Eastern European labour.
Trusty Google suggests the average builder salary in UK is £40k = $81k NZD.
Average builder salary in NZ $70k to $90k.
If we're all just migrants from the UK (Inc Aussie).
Adopting the same system, and running them in parallel
The results can't vary much.
The balance is distance, and scale.
People need to complain more about what we earn, not how expensive 'stuff' is.
It's either one or the other (usually both).
One issue when viewing all this is how some aspects of life have deflated to nothing.
You can buy some Bluetooth headphones for the same price as a packet of minced beef. We think we're better off, because hell, it's Bluetooth headphones man.
But it's actually not cheap to raise, slaughter and butcher a cow.
100s of packets of mince in 1 cow though.
Now if we can only get tradesman to stop ripping us off. I had a plumber, on top of his $120ph, charged me a $15 'van service fee'. I said, "mate, next you'll be wanting $20 bloody lunch money"!
Imagine seeing a line item on your invoice for the 20 second phone call to advise you they're on their way. Rounded to the nearest 30 minutes.
Could be a plumber thing, mine tried to charge me a health and safety levy. My counter was health and safety isn't optional, and I didn't see anyone fill out a task analysis when they did the job.
That said there's a marked difference doing callout style work to a fixed price job.
I blame much of it on a shift to digital billing.
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