What can we expect for new home construction costs in 2024?

Economist talks about the crucial factors influencing construction costs

What can we expect for new home construction costs in 2024?

Kelvin Davidson (pictured above), CoreLogic chief economist, has shed light on how much building a new home will cost in New Zealand in 2024.

Construction costs levelling off

Following a post-COVID surge in new house construction costs, a slowdown in construction volumes and a return to normal for materials supply chains have led to a sharp slowdown in cost growth. The Cordell Construction Cost Index reported a mere 2.4% rise in building costs for a standard dwelling across NZ in 2023, the slowest annual growth since late 2016.

Read about the latest CCCI here.

“That said, costs are still rising – so it’s not getting any cheaper to take on a new project, especially since wages typically account for 40-50% of the overall bill,” Davidson said in a OneRoof article. “But at least households who are thinking about a new-build in 2024 can at least be a bit more confident that the costs won’t run away on them while they plan and secure finance, etc.”

Dwelling consents: Caution required

Dwelling consents in November saw a 36% drop from the same month the previous year, marking the 14th consecutive monthly decline, according to the latest figures from Stats NZ. The annual running total is now 38,209, the lowest since October 2020.

To read about the latest dwelling consents report, click here.

Davidson said that despite the reduction in dwelling consent numbers, the figures were still relatively high, even as he noted that “some of these consents won’t ever turn into actual houses, while demolitions of existing property reduce the overall net boost to the housing stock too.”

Consents per 1,000 people remained slightly above the long-term average, and the monthly average, despite recent declines, still supports the industry’s capacity to build around 35-36,000 dwellings annually.

“So, yes, consents have fallen. But new supply hasn’t disappeared altogether,” Davidson said.

Resilient labour market

Despite a modest 0.1% rise in filled jobs in November, New Zealand’s labour market has maintained a positive trajectory, with consistent employment growth for the past 20 months. The number of jobs is also 2.7% higher than a year ago, contributing to the support of house sales and prices.

“Granted, there are some risks that employment could drop a bit more significantly this year, especially if we continue to hover around economic recession,” Davidson said. “But house sales and prices are still being supported by the labour market, for now.”

Shorter mortgage fixes dominate

Reserve Bank data revealed that 72% of new loans in November were fixed for up to two years, a further 18% were on floating rates, with only 10% of borrowers opting for loans longer than two years.

“Given that any rate cuts by the banks in the second half of December tended to be for those longer-term fixes, it’ll be interesting to see how borrowers reacted to those shifts (if at all) – when we get the data on February 8,” Davidson wrote. “The Reserve Bank will presumably be keeping close tabs on all of this too, as a fall in longer term mortgage rates – if acted upon by borrowers – could undermine some of their efforts to curb inflation.”

Rents and migration continue as hot topics

Ongoing discussions about rents and migration persist into the new year. Stats NZ will release updated rent price data for December and net migration figures for November this week.  

“Very strong net migration over the past 6-12 months has clearly boosted property demand, and has pushed up rents at an above-average rate,” Davidson said. “This situation won’t last forever, but there’s every chance that this week’s data will still show ‘more of the same’ – good for landlords, unwelcome for tenants.”

To access the OneRoof report, click here.

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