New Zealand house-building costs are increasing at the slowest pace in almost three years as high interest rates and economic uncertainty curb demand for new homes.
(Bloomberg) — New Zealand house-building costs are increasing at the slowest pace in almost three years as high interest rates and economic uncertainty curb demand for new homes.
Construction costs rose 0.5% in the three months through September, the smallest gain since the fourth quarter of 2020, CoreLogic New Zealand said Wednesday in Wellington. From a year earlier, costs climbed 3.4%.
The Reserve Bank’s aggressive monetary tightening and weaker economic growth have seen house prices and consumer confidence slump, slowing the demand for new homes. Building consents in the year through August were 17% lower than the year-earlier period.
The construction cost index is based on the cost of building a 200 square meter brick and tile house including labor, materials, plant hire and sub-contractors. The gauge rose a record 10.4% in 2022, reflecting a squeeze on the supply of building materials such as wallboard, and a shortage of tradesman and laborers because the closed border prevented the arrival of foreign workers.
“We’ve now entered a more subdued phase for construction cost inflation, reflecting the marked easing in materials supply chains, compared to the Covid-affected period over 2021 and 2022,” said CoreLogic Chief Property Economist Kelvin Davidson. “Although building capacity pressures have eased, continued growth in wages is keeping some pressure on overall construction costs.”
CoreLogic expects new dwelling consents will fall further, with workloads and construction costs continuing to moderate.
“It wouldn’t be a surprise to see the quarterly rate of change continue in the vicinity of 0.5% for the next few quarters,” Davidson said. “While new builds probably won’t get cheaper, a controlled annual growth rate of 2-3% gives confidence for buyers to invest and for developers to keep bringing projects forward.”
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