House building costs track well above inflation

Wednesday, 20 June 2018

House building costs continue to rise at a faster pace than the rate of inflation because of strong demand for materials and labour.

The latest QV costbuilder report shows the cost of building a new home in six of New Zealand's main centres rose on average by 3.4 per cent in the year to April 2018 and has risen 30.7 per cent since the previous peak of 2007.

The Government's Kiwibuild house construction programme is expected to keep up pressure on costs. Pictured is Phil Twyford, Labour's spokesman for Housing, Building and Construction.

The latest rise was three times the current rate of inflation - the rising cost of all goods and services - at 1.1 per cent for the year ended March 2018. House builders, alcohol drinkers and tobacco smokers were hit with steepest price increases, while motorists and international air travellers enjoyed falling prices.

QV spokesman Martin Bisset said the faster rising cost of housing reflected a buoyant sector with strong numbers of housing consents, although not rising as fast as last year.

Rider Levett Bucknall's Auckland director Geoff Speck.

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Bisset said one of the few times house price inflation had risen less than general inflation was in 2009 after the global financial crash.

The latest 3.4 per cent rate of increase was faster than the annual rise of 2.7 per cent in late 2017.

The figures suggested there was still some growth in the residential market, Bisset said.

QV data showed the average cost of building a standard 140 square metre, three bedroom, one bathroom increased in Auckland by 2.9 per cent to an average cost of $281,750.

Dunedin and Waikato cost rises were similar, but the rise in Wellington was more modest at 1.7 per cent, Christchurch was 2.2 per cent higher, and Palmerston North 1.4 per cent.

The greatest increases were for a 150sqm three or four bedroom, one or two bathroom home, which increased by about 4.7 per cent for all regions, with Auckland and Christchurch taking the lead at 5.7 per cent to $310,315 and $311,250 respectively.

'It's important to remember these figures are averages and the cost of building any home will always depend on the level of finishes, internal layout, and whether it has a single or double garage,' Bisset said.

QV costbuilder figures exclude costs of land, demolition, increased structural requirements and external works such as landscaping, driveways and parking areas, power, water, gas, drainage, and phone connections, balconies, and professional fees.

Meanwhile, Rider Levett Bucknall's latest quarterly report predicts acute labour shortages, and further growth in demand for apartments and townhouses, given the Government's plans to underwrite financing of housing developments as part of its Kiwibuild programme.

Fletcher Building's exit from the sector was putting upward pressure on construction costs, Geoff Speck, Auckland RLB director said.

RLB forecast construction cost inflation to peak at just below 5 per cent before moderating to 4 per cent by late 2019 and 3.5 per cent in late 2020.

Significant work within Auckland's CBD included the City Rail Loop, Commercial Bay, and the Skycity Convention Centre and hotel projects continuing, plus other projects in early phases. Commercial and residential projects were also in full swing within the Wynyard Quarter area and city fringe, as well as retail projects in the wider region.

Christchurch's commercial rebuild had passed its peak, and in Wellington several large projects were due to come to market, building on major civil projects under way, Speck said.