Residential construction costs have declined for the first time in 12 years, according to the Cordell Construction Cost Index (CCCI)
The Index tracks the costs involved in building a single story brick and tile, three bedroom house, including labour, materials, subcontracting services and plant and equipment hire (but not land) and reports the results quarterly.
The results showed a 1.1% decline in the June quarter of this year, the first time it has declined since the Index began in 2012.
The 1.1% decline in Q2 pushed annual cost inflation down to just 0.6% in the 12 months to June 2024.
"The downturn in workloads in the construction sector has eased the pressure on capacity and that’s flowed through to reduced building costs,” said Kelvin Davidson, the Chief Property Economist for CoreLogic which manages the Index.
“Coupled with a slowdown in the growth of average hourly wage rates, the flattening of building materials costs has also caused a reversal in trends from the rapid growth in construction costs in the past few years," he said.
The CCCI recorded falls across several important materials, including structural steel and kitchen joinery.
Costs for tapware and electrical light fixtures also fell.
Davidson said he had anticipated that growth in the CCCI would be subdued and wasn’t shocked at the falls given the construction industry’s soft operating conditions.
“Construction costs spiked during 2022 due to lingering COVID-affected supply chain issues, as well as a boom in construction activity as dwelling consents peaked around that same period,” he said.
“Those factors have all now been resolved with material supply back to normal, dwelling consents falling and the pipeline of jobs coming to completion.
"This has alleviated significant pressure on the industry, freeing up capacity and reducing costs," he said.
Davidson also said the increased availability of established properties on the market is likely reducing demand for new builds, giving home buyers a wider selection and more options.
“Elevated stock levels among existing property listings means fewer households are going down the new-build path. It’s also possible the higher cost of a new-build compared to an established property could also be a deterrent, especially when general household finances are tight,” Davidson said.
He added the recent changes to the Brightline Test and interest deductibility rules have also reduced the incentives for investors to look at new-builds.
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73 Comments
Yay for buyers, very tough times for non developer tradies
I assume this takes into account the new H1 building code requirements....
From what i've heard, that's going to be canned
H1 is already in place so highly unlikely it would be canned.
And the ferries were ordered...
Just saying.
Perimeter slab insulation, thermally broken windows and extra wall/ceiling insulation requirements are where the costs is.
They might drop one but can’t see them unwinding the whole lot.
Much of the decrease in building costs we'll be seeing are down to businesses buying work in a depressed demand environment. Some will just live with lower margins while others will discount their way to insolvency.
The logic is:
The new build property must be sold，as developers need to quickly recoup funds to survive, in order to sell the large inventory of newly listed homes on the market, they have no choice but to lower prices until first-time homebuyers can afford them. ➡️
At the very least, the price-to-rent ratio must make buying more advantageous than renting.Some homeowners, who decided to postpone listing their properties due to falling home prices, list their properties for rent, This has led to a large number of homes entering the rental market, including those rented to cover mortgage payments. ➡️
As a result, rent prices have started to decline, while interest rates remain high. This has further driven down the price-to-rent ratio, making the interest paid on a mortgage higher than the rent. Consequently, fewer people are buying homes, leading to continued drops in home prices until they return to a rational level.➡️
Unemployment is rising, the economy is stagnating, and banks are tightening loan-to-value ratios, making people even more reluctant and unable to buy homes. Consequently, the downward pressure on home prices intensifies. ➡️
The decline in the new home market also drags down the existing home market further. Even though some vendors are willing to delay listing their homes, but some elderly homeowners and those urgently needing to sell. As a result, overall home prices continue to fall, regardless of the homeowners' desired prices. Ultimately, the market and buyers' purchasing power determine the final price.
Not sure where the rents are declining?
We are only putting ours up and everyone else that I know are also increasing them significantly.
Landlords need to be doing this as costs increase.
I thought National's policies would prevent your lot from raising the rents?
Seriously, it was Labour that has caused all the issues!
Why would rents drop when costs have escalated due to mismanagement?
Rents will never drop as the rental returns now on new purchases are too low.
Rental property owners require some return on their outlay and efforts!
Property rentals are the productive sector for the economy, Term Deposits contribute nothing to the economy!
The lazy mans investment are Term Deposits!
What costs are you talking about? I thought National had it all under control?
Council Rates have increased significantly, insurance has continued to increase as well as repair costs!
We are hands on investors so we can do things cheaper but it is all time snd money and sure as anything we are not going to absorb the increases.
Interest being as a legitimate expense is 80% this financial year and if National was not now the government the increases would be a heck of a lot more!
Rental increases are going to continue to occur due to costs, so investors are needing to pass the costs on rather than wearing them,
No shortage of people requiring rental housing in ChCh and are therefore needing to pay for the privilege!
I will take 6.10 term deposit so I don't have to deal with people like you. as far as land lording being productive you are dreaming mate.
If it wasn't for landlords there'd be thousands on the streets, and rents would be even higher.
Term Deposits are an unproductive investment that the lazy man puts their money into.
What you are doing is giving the Banks money so they lend out to Landlord/investors, to help out the productive housing sector, so we thank you!
Follow the data trend and then apply non-biased critical thought: Rental listings up 40 percent across country in three months to May
Notably, the website's data shows Auckland listings were up 40 percent, Wellington 56 percent, and Canterbury 35 percent, over the last quarter.
"It is a significant increase in rental stock, and anecdotally what we're hearing is that people are shifting away from shorter term rentals like Airbnbs and book-a-bach, and they're moving to longer term rentals due to the economic climate that we're in at the moment," she said.
"We've actually already introduced some properties where we've reduced the rent already to meet the market, we've already done that on a number of properties over the last month," he said.
"If we continue to see the oversupply of stock, the thing that will need to change will be price, so that properties can be rented," she said.
If a landlord is topping up the mortgage as the rent doesn't cover it, or the interest only, then they are expecting that the future capital gains, and rental profit after the mortgage is paid off, will outweigh the overall money of their own that they put into the mortgage form their own pockets. If not expecting capital gains, a rational person would offload the investment as it would clearly be a bad investment. With the rise in rentals available form the reasons you say, there may be the potential for landlords finding it harder to find a renter, and risking paying the mortgage themselves. Time will tell, as listings are still on the way up and something has to give eventually.
Also there is now no tax advantage for investors buying brand new rentals, so they will go back to buying existing houses where the rental yields are much higher, and there is greater opportunity to add value (renovating, adding a minor dwelling) to the investment. The new build market is really going to struggle now.
Yes, the interest deductibility rules may have been unconventional or even dastardly, but they were a good incentive to push investors into new builds which was good for supply. Maybe not good for building price inflation.
Like all buyer handouts they are simply capitalised into the final price, so all they did was push up prices by the value of the tax deduction (around $100k by my estimation), which penalised owner occupiers who wanted to buy a new build. Now that the interest deductibility premium is eliminated prices will fall back to equivalence with the existing builds that are a couple of years old.
I am of the belief that owner occupiers (especially FHB) should be pushed into the new build market while investors should be focused on the existing build market. Reasons - owner occupiers benefit more from living in a brand new home (emotional attachment etc) than an investor, they will stay in the home longer, and they wont have to wear the additional cost of maintenance and repair for many years. Whereas investors can buy older, run down properties, obtain a better yield, then improve the standard of the dwelling by renovating and repairing it, which improves housing quality over time. They also have the ability to add secondary dwellings to older dwellings, thus also increasing housing stock.
Labour got it the wrong way round - pushing up prices for owner occupiers who wanted to build, and pushing up rents for tenants who were forced into renting brand new homes instead of something a lot cheaper (and thus making it harder for them to save to buy their own home).
Good ‘ole unintended consequences!!!
Oh Niuniu, this is such a confused post (no wonder you get lots of upvotes).
The article is about CONSTRUCTION cost reducing, not about house prices. Then you throw in falling rents as well...
Good on you though for educating yourself on Interest. Keep reading the articles and the post of the few smarter people (the ones who don't get double digit upvotes). You will then soon get a better understanding of what drives the many different parts making up housing.
Land prices will come down very quickly, land bankers will wake up as more areas are opened up for development
Those over extended will need to dump stock.
Actual land bankers will just sit on theirs till they think conditions have improved.
Could be waiting a very long time, more supply could create a situation where land prices drop very quickly. Building cost will come down slightly but cost for land will take biggest hit.
Many of these people don't mind waiting 5-10 years+ if need be.
The governments proposed changes around housing could alter this, but that too will be years in implementation.
If you had ten million invested in land would you wait 5 to 10 years the 10 million would be making 600k per year minimum.the one item which New Zealand have is plenty of land per capita.
Yes that's exactly what many land bankers do, they are thinking on far longer timescales.
Hence the downside of all this debate based on a financial news cycle.
Not 2-3 years ago people were overjoyed at the employment market based on a temporary labour supply shortage, as if it were the new norm.
Totally agree - and this land isn't empty. It's normally being leased to farmers / horticultualists and are deriving a decent return on that investment. They can afford to wait for the max return.
But not a lot of residential zoned land per Capita.
You can get houses pretty cheap in parts of NZ too, but most people want to live where land is scarce.
I'm not 100% savvy with margins on larger development lots, but it's likely better than a 6% return, by many multiples. People are turning hectares bought for cheap into hundreds of individual lots.
That's not how land banking works.
They have bought long ago at the rural, or the 'rural future to be rezoned residential' price, so the present use return eg farming covers the holding costs.
It's all the developers who buy off them at the $2,000,000 ha price that HAVE to develop or find a greater fool to off load it to.
The whole idea of the National Govts. plan to release more land, especially on the fringe, is to allow other lands beyond the land bankers to be considered, so if the land bankers just sit on it, they can be bypassed to more affordable land.
This will force some landbankers to look to cash up their holdings sooner, at a discount( but still making a profit) to move it now.
Thus there will be some landbanked land, plus some newly available land, at more affordable prices to develop now than otherwise.
How is the government going to force landowners to sell if they don't want to?
That's the whole point, if you open up the potentially available land to 'everything' bar a few qualifying matters, then there is always someone somewhere that will be on the market for their own reasons regardless.
EG a farm, that the ready-to-go developer only has to offer a few $ha more (not millions more) to be more competitive.
Those who want to sit on it, are more than welcome to do so, but they won't be able to get any more extractive speculative gain from it.
Those who want to sit on it, are more than welcome to do so, but they won't be able to get any more extractive speculative gain from it.
Only in the short term. Potentially land that is closer to main centres than the newly released land will increase in value more over time
Your confusing speculative non-value added, with amenity value added.
There is always in any city a value/rent bid curve from the fringe to the centre of a city.
What sets the value of land going in is at the fringe, the cheaper at the fringe, the relatively cheaper it will be compared to a city that starts with dearer land on the fringe.
This land curve comparison can be seen in the 2024 Demographia report page 18 Demographia International Housing Affordability, 2024 Edition
Forcing indirectly by changing the area previously zoned as rural or life style block whatever zoning types there are other than residential. This changes the c/$ rate for rates and pushes up the rates and taxes. It happened/happening here in New Plymouth and probably happens with other councils. My suspicious nature of any form of govt, either central or local leads me to believe NPDC surreptitiously rezoned the land leading into the airport from whatever it was to residential and the the sub-sequential double whammy of new valuations and rezoning has likely increased the rates by at least 25% for these owners. I have not delved in depth into this but since I'm already in a residential area and had my NPDC rates increased by 18%, the rezoning to residential of non residential will achieve a rates increase of at least 25%.
By surreptitious I mean not advising each land owner directly but through a general publication of a development plan.
Happening around Havelock North right now. Land values more than tripled when properties were rezoned from rural/lifestyle to residential, and rates more than doubled. Anyone without a lush income and a desperate desire to keep the land was left with very few options. Both sides of the town are now a construction zone.
The payout would ease the pain for the former landowners, but the areas being built on are fertile land, and the primary production loss is permanent.
Rezoning land doesn't add money for the council. It only redistribute the total budgeted rates between all properties.
It won’t necessarily be years in implementation.
Some things can be done via national environmental standards in the RMA, which have immediate legal effect and don’t require local planning processes.
I expect we will see a number of National’s proposals in effect by end of this year.
By the time the legal framework gets implemented, and that flows through to the design/permitting stage, it'll be a while before a hammer is swung that'll reflect the changes.
Yep and just rezoning land is one thing, to get it development ready will need infrastructure to be planned, funded and built. There are lots of gotchas in the plan such as "value capture" etc where the intent is to charge land developers the full cost of infrastructure needed to realise the use of the land. All of that will change the development feasibility of that land. Minister Bishops mantra of flooding the market with developable land is wishful thinking. A local stream perhaps.
Very much doubt it.
The cost of developing land is always going up. It can take years to get it past the Council. Developers even have to take into account what affect it's going to have on the local maoris.
Who's going to sell their land for development at bargain, basement prices? In the meantime the NZ dollar's tanking, which makes imported materials like hardware, stoves and fridges more expensive.
It's taken me 6 months to get a permit to build my new house from the Auckland Council.
It's all smoke and mirrors folks.
It's not a question of whether it's a bargain based on past prices, it's based on future expected performance.
If you expect a better return on other investments compared to the investments you hold now then the decision should be to dispose of your current investment regardless of your sunk cost.
The amount of unrealised gain or loss is not relevant to the decision to hold/buy/sell an investment at the current time.
The cost of developing land is always going up. It can take years to get it past the Council.
Interesting. So if it can take years to get it past the Council, what does this mean for an application to develop land that has already been knocked back by the council? E.g. Botanic Riverhead?
The Botanic was fast-tracked and then the Council changed its mind. It's still being processed, but not fast-tracked, I discussed it with the Botanic.
Hundreds of acres was acquired at Riverhead years ago by major developers, and it's taking them eons to get it past the Council. One thing I can tell you, the value of that land won't have declined as the city moves to within a few km away.
It's all a giant talkfest.
Who's going to sell their land for development at bargain, basement prices?
Their lenders.
Their lenders? Why aren't they doing it now then? Because the landowners aren't up against it.
The land and houses are rented or farmed. I doubt you'll find Matvin Group are up against it.
There'll be Council meetings, public debate, Parliamentary Submissions, objections, new planning rules, maori grievances, court cases.........it'll take years. NZ is one of the worst countries in the OECD for red tape.
People on here have to make the distinction between landbankers and developers.
Landbankers buy the land very close to the price it is earning an economic return from in its present form, and then just sit on the land with very little holding costs, and in doing so because of restrictive land use policies, cause a further supply restriction, then along with the up-zoning can at some stage sell the land onto developers at $2,000,000 plus per ha. Some of these landbankers, by accident, are also generational farmers, but in general, it is a profession.
The developer who buys at this price has to develop within a specific time frame to make his money. This timeframe includes 'the price of land always goes up,; budgeting to make the figures work, thus even if the council causes delays, as long as the cost of the delay is less than the purchase price holding costs, they can hopefully come out ahead.
Right now there will be a lot of landbankers that are annoyed that their extractive monopolistic speculative days might be over, but there are many developers (from small to very big) who had purchased a few years ago at the old extractive money price that will be shitting bricks.
I would expect three months absolute maximum. I can only conclude, not knowing the details, that it is an obscure build requiring many RFIs. So likely the architectural designer or architect whose not experienced with RC/BC matters or had too much work work shuffling you to the back of his queue until you made some noises.
“The downturn in workloads in the construction sector has eased the pressure on capacity and that’s flowed through to reduced building costs” - so reducing demand through increasing interest rates does work?
It's almost like the "cost" of building is somewhat related to the amount of credit people can borrow. So from 2008 to 2021 when mortgage rates fell from 9.6% to 2.5%, every supplier to the building industry took advantage of the opportunity to price gouge off the back of the consumer's increased borrowing power and demand.
As work continues to dry up, everybody will drop their margins. Manufacturers may end up selling below their manufactured costs in the short term because you can't just flick a switch and turn off the fixed overheads.
Yep. The amount of trades that are offended, or flatout refuse, to provide a materials and labour breakdown was epic over the last 4 years.
The days of gouging customers is at an end due to multiple bids becoming standard practice again.
Just this week I had a plumber try and get a quote through @$250 per hour +tax for his labour. Obviously his first quote just had a final number, once he provided a line by line price he was caught with his hand in the cookie jar.
Yep. The amount of trades that are offended, or flatout refuse, to provide a materials and labour breakdown was epic over the last 4 years.
Some people will rogue it in such situations, but there's also issues breaking down items into separate parts. Given the usual disparity between practically applied knowledge and a layperson's perspective, you can get into situations where the client can end up wanting to substitute proven products and techniques with their own lower cost perspective.
Did he try charge you to provide an itemized quote? I've heard of that happening.
The Auckland Builders Facebook page is just one person after another saying they have no work.
A lot of people will give it a month or two then book flights to Oz.
Where the construction sector is getting an even worse bashing, and the rental markets even worse.
Serves them right for buying stupid expensive Ford Rangers and passing the costs onto the customer. That won't fly anymore.
Also having 3 or 4 LBP acting as "foreman" and not touching a tool will come to an end. All caused by greed and taking on too many jobs, subbing out everything and then whacking on a 50%+ markup.
Plenty of imported labour quoting cheaper as well.
Turns out roofs don’t need to be straight or look good anymore. Aware of one roof on a new build that has the roof running parallel to the valley. Poor owner will have no idea until the silicone lets go. All signed off, scaff is down. And we want to move to remote inspections.
Edit. 100% agree it’s time the price gouging local ones are weeded out
And still 25% more expensive than building in Australia.
Colorsteel going up in price 4.5% Aug 3rd…….. suppliers are ensuring that Colorcote goes up to match.
It’s disappoint too that builders can’t shop around to avoid this. Try going around ITM and you find out pretty quickly that’s a big no no.
It’s actually pretty discussing and made worse by builders happy to accomodate ITM rather than the one footing the bills.
Builders need to put pressure on and start shopping around themselves.
While sometimes there can be a trade/supplier relationship that ends up being sub-competetive, there's also an efficiency to be had with having one sole supplier than constantly scouring the market or massively divvying up your supply chain.
It'd be like wasting time and gas getting your groceries from 10 different places for nominal price savings.
Not when high value trades such as Colorsteel roofing are delivered direct to site. How long does it take to send an RFQ to multiple suppliers?
If multiple suppliers do not exist i.e. everybody is selling Colorsteel, then what is the Commerce Commission doing?
Exactly. Big ticket items.
Try ordering your cedar directly without going through ITM and see how you get on. It cost me $15k to have them deliver it 40km.
You can directly buy timber from individual timber merchants. I did that during COVID, significantly cheaper cedar than buying through chain suppliers (and they had stock).
Not when high value trades such as Colorsteel roofing are delivered direct to site. How long does it take to send an RFQ to multiple suppliers?
For every job? Probably long enough to have to pay for (and pass on) the cost of a procurement staff member to your clients.
Usually it's better to have an ongoing supply agreement which involves competitive pricing based on you giving the supplier the bulk of your business.
Likewise it's better a head contractor seeks out quality sub trades at fair rates and uses them continuously, rather than tender out subbies each and every job. The cost savings to be had by going for cheapest tradie every time is over-ridden by the variations in quality, reliability and workmanship from a shotgun approach. Better for cohesiveness also.
An ongoing supply agreement can lock you in at a high price if market prices fall, unless you're big enough to include a KPMG audit clause and invoke it if you feel like prices have fallen.
Presumably you'd have at least a QS/Estimator (who would handle multiple RFQ's to approved suppliers/trades) and use their better judgement as to which conforming quote they work from and the Project Manager subsequently uses. I'm not suggesting you'd throw a bunch of cowboys into your mix, just that you'd have a small selection (ideally 3) of preferred suppliers/subtrades. You might even be transparent with them, "Awarded to ABC their lump sum was $xxx".
Certainly pays to have back up suppliers/trades (ones that have already quoted the job) in the event your nominated supplier falls through, so you're not waiting 2 - 3 weeks for them to quote the job from scratch.
If your rate is locked in then that gives you a degree of certainty. Sometimes you win doing that, sometimes you lose. Alternatively there's a fixed % discount off the rate of the day.
Generally, just from experience, head contractors that divest significant resources nickel and diming each component of a project usually end up with the largest quality/delivery problems.
There's a balance. I know what you mean about the nickel and diming project managers, but that's not the same as obtaining 3 quotes for each trade and scoring the bids on price and non-price attributes at project tender/bid stage.
What you're talking about is the morons who after the job is awarded go line by line on the schedule, trying to find savings by shopping around for materials and cherry picking bits from various suppliers for their cheaper line items. Trying to look like a hero for finding additional savings, yet they run into issues because they pick items that were the cheapest, but with the longest lead time, and then the critical path grinds to a halt because they unsuccessfully bully the supplier into shortening an already realistic lead time.
You could also join one of the building material co-operatives to save a lot of money - https://cbscoop.co.nz/
I've always asked the builders I've dealt with if they're a member. The ones that aren't clearly aren't interested in managing their supply chain costs, and I suspect are more interested in the incentive schemes (that just have to be ended) from the suppliers - and I go elsewhere.
The guy building my house has just taken on 2 more chippies. He's got loads of work.
Now that the govt. has signalled an intention to free up land on the outskirts of Auckland, there'll be a mad scramble to acquire it, which will send the prices up. And the NZD taking a dive will increase the prices of imported materials, ovens, microwaves, washing machines etc.
Right?
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