The cost of building a house in New Zealand has jumped 6.1 per cent in the past year and could rise by 10 per cent or more in 2022, according to experts.
The CoreLogic Cordell Construction Cost Index (CCCI) showed that for the final quarter in 2021 the cost to build a standard 200sq m brick and tile house rose 0.9 per cent, which equates to $142.70.
Across the calendar year that cost rose 6.1 per cent, which is the highest since the second quarter of 2018, when prices climbed 6.2 per cent.
CoreLogic Chief Property Economist Kelvin Davidson said timber prices and record building consents were two drivers behind rising costs.
“Despite reports of a slight softening in the rate of price growth for timber in the last quarter of 2021, our perception is that timber products for house building are generally continuing to see significant price increases,” Mr Davidson said.
“New dwelling consents are also running at record highs.
“This, combined with consented alterations and additions projects, work that doesn’t need consent plus the wildcard that is Omicron indicates that there is plenty more to come in terms of cost growth.
“It wouldn’t surprise me if construction costs accelerate further in the next few quarters, possibly even hitting double digits.”
Rising construction costs are a concern for affordability in the New Zealand market, which recorded a 27.5 per cent rise in housing values in the year to January.
Mr Davidson said a perfect storm of conditions had combined to produce the worrying climate and he expected to see a drop off in new home building consents towards the end of the year.
“What we have at the moment are headwinds and tailwinds colliding,” he said.
“On one side we have the loan-to-value ratio rules which favour lending for new builds, plus the rejigged system around investors claiming mortgage interest as a deductible expense, both of which should underpin construction demand and activity to some degree.
“But mortgage rates have risen sharply, meaning households will be less able to stretch their budgets than before.
“And of course the rapid construction cost growth itself may deter some households from going down the new-build or significant renovation path, which I expect will lead to an eventual slowdown in new work being consented later this year.”
CoreLogic Country Manager Simone Moors said rising costs didn’t just affect home renovators, builders and businesses, but all home owners and investors.
“In these times of rapidly rising home and construction costs, under-insurance can quickly become a real threat to what is a most valuable asset,” she said.
“It’s important that home owners keep track of their sum insured and annually check that it is sufficient should the worst occur by using their insurer’s rebuild calculator or giving them a call.”
