Decline in building approvals slows price growth, report finds
A decrease in dwelling consents has resulted in a slowdown in residential construction activities and price growth in New Zealand, according to the latest Cordell Construction Cost Index (CCCI).
Construction costs rose 0.6% in the June quarter, aligning with the figures from the previous quarter. However, these numbers were significantly lower than the average quarterly increases of 2% recorded in both 2021 and 2022.
The annual rate of change in the CCCI declined to 6.4%, still above the decade average of approximately 4.5%, but an improvement compared to the peak of 10.4% observed in late 2022.
This year, dwelling consents fell by 10% to less than 46,000, according to the CCCI June report. Kelvin Davidson, chief property economist at CoreLogic (pictured above), noted that the current consents remained substantially higher compared to the post-GFC numbers of 14,000.
“Although we’re also seeing the actual volume of building work start to drop, the construction industry is still busy as it works through the pipeline of previously approved consents,” Davidson said.
“The widely anticipated slowdown in consents has alleviated some pressure on the construction materials supply chain in recent months while also slightly reduced workloads for builders, which means that the growth in costs isn’t as intense as it was in 2022.”
Throughout 2023, the quarterly rate of increase has averaged around 0.6%, a drop from the 2.5% average experienced last year.
In terms of materials, Davidson said timber prices had stabilised in 2023, with some structural timber costs even showing a decline. Metal prices remained steady or experienced slight decreases, with recent drops in structural steel costs.
However, the implementation of the H1 energy efficiency and insulation standards in May has the potential to increase the overall cost of a standard build by approximately 3% to 5%, Davidson said.
“It’s possible that the overall CCCI may well have slowed even further in Q2, had it not been for the new roof, window, wall, and underfloor insulation building code changes,” he said.
Davidson projected a further decline in the number of new dwelling consents, resulting in ongoing moderation of workloads over the next two to three years as construction projects in the pipeline reached completion.
He added that the ease in demand and increased builder capacity would help restrain construction costs. However, the impact of migration flows on labour supply required close monitoring.
“The expectation is the quarterly rate of change in the CCCI will continue to grow around 0.5% for the rest of 2023, taking the annual change to less than 3% by the end of the year,” Davidson said.
“That’s not going to mean the cost to build a new home is going to be cheaper, but it does provide some reassurance to buyers that costs won’t increase at the same rapid rate we’ve experienced in the past two years.”
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