The cost to build a “standard” single-storey three-bedroom, two-bathroom standalone dwelling in New Zealand increased by 0.6 per cent in the three months to December.
It’s half the 1.1 per cent growth seen in the third quarter of 2024, and below the long-term average quarterly rise of 1.0 per cent.
CoreLogic’s latest Cordell Construction Cost Index (CCCI) shows the annual growth over the past 12 months has also slowed to just 1.1 per cent, down from 2023’s rise of 2.4 per cent, and well below the spike of 10.4 per cent in 2022.
CoreLogic chief property economist Kelvin Davidson says it was little surprise that construction cost growth has slowed in the past 12-18 months.
“The previous Covid-related pressures on materials supply chains such as plasterboard are no longer an issue, and there’s also been a wider slowdown in the number of new dwellings consented and actual residential construction work being undertaken,” he says.
“As a result, there’s been reduced pressure on the industry’s capacity, which naturally dampens cost growth, both for materials and labour.”
Davidson points out that although the downturn in the construction sector has been deep and prolonged, it started from a very high base, meaning that over the longer-term recent levels of dwelling consents and construction activity have remained above previous troughs – including from right after the Global Financial Crisis.
In terms of specific product lines, the cost trends in quarter four remained mixed.
Carpet saw a 3 per cent increase in the three months to December, with wall insulation up by 3 per cent and plasterboard rising by 4 per cent.
On the other hand, external timber products dropped by -5 per cent, and kitchen joinery costs were down by -3 per cent.
Looking ahead, Davidson says construction sector activity is unlikely to suddenly surge higher, especially with the slowdown in population growth due to the decline in net migration.
“Construction conditions look set to improve in 2025 as mortgage rates drop, but overall cost growth may still remain relatively controlled.
“There are also signs in the new dwellings data from Stats NZ that a floor may have been reached and that a rise in construction is likely in 2025.”
Elsewhere in the market, Davidson notes the loan-to-value ratio (LVR) rules continue to incentivise property buyers to look at new-build dwellings, while the debt-to-income (DTI) ratio restrictions do the same.
“DTIs aren’t having much impact right now, but with mortgage rates falling they’re set to become a greater consideration in 2025, and could result in a relative shift in property demand away from existing dwellings and towards the new-build segment.”
- To read the report, visit www.corelogic.co.nz/reports/cordell-construction-cost-index.
