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New Zealand house construction costs rise at fastest rate in two years

Housing construction costs in New Zealand surged by 1.3 per cent over the first quarter of 2021, according to the latest CoreLogic Cordell Housing Index Price (CHIP). 

The CHIP report measures the rate of change of construction costs in the residential market and covers freestanding and semi-detached single and two-storey homes.

The latest report shows the March quarterly growth is the highest rate of construction cost inflation since the first quarter of 2019, and far exceeds the 0.6 per cent and 0.4 per cent increases throughout the third and fourth quarters of 2020.

CoreLogic New Zealand’s Chief Property Economist Kelvin Davidson said the impact of the busy construction sector now appeared to be flowing through to faster cost rises. 

“The first quarter bounced up to 1.3 per cent growth and early indicators are that we will see a continuation of this growth in our second quarter report,” Mr Davidson said. 

“Annual residential construction cost inflation is also back on the rise, up to around 3.3 per cent in the March quarter after falling to under 3 per cent in the fourth quarter of 2020 from a peak of 6.9 per cent in the fourth quarter of 2017.”

Mr Davidson said the construction sector was “proving to be a real bright spot in the economy”, with new dwelling approvals currently tracking at their highest levels on record. 

“Our teams are also hearing through their research and conversations about increasing material and labour costs coming down the pipe as there are shortages and substitutions, and the expectation is for this to have a continuing impact on the cost of building in the near future,” he said.

When combined with potential COVID-related shipping problems, and also the recent publicity about shortages of structural timber domestically, Mr Davidson said the potential for faster and greater cost increases was accentuated.

“The Government’s recent tax policy changes, which incentivise investors to target new-build properties, could well add further demand to the sector and place more pressure on capacity and costs. 

“Time will also tell if the Government’s budget reveal includes other enticements or measures aimed to lift housing supply. 

“After all, any Government-boosted work is in competition with the private sector for scarce resources.”

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