Record high building costs expected to surge further

While building consents are dropping year-on-year, costs are hitting record highs and expected to even hit double digits by the end of the year.

Monday, October 17th 2022, 10:50AM

by Sally Lindsay

CoreLogic’s Cordell Construction Cost Index shows the cost to build a standard 200m2 three-bedroom, two-bathroom single-storey brick and tile house increased by 3.4% in the third quarter, exceeding the 2.6% rise recorded over the three months to June. Annual growth reached 9.6%, almost two percentage points higher than the 7.7% increase in the year to June.

CoreLogic chief property economist Kelvin Davidson says while there are signs of a slowdown for the residential construction industry, they are small and coming off a very high base.

Auckland Council data show it issued 21,463 building consents for the year ended August, an increase of 7.7% on 2021.

The number of new homes built in August also reached a high of 1,320 – the seventh highest number of Code Compliance Certificates (CCCs) given for new houses in the Auckland region since records began in 2013. In the year ending August, 13,021 dwellings had a CCC issued.

However, it often takes two years between a building consent being issued and a house being completed and receiving an Auckland Council Code of Compliance Certificate (CCC)

Auckland Council figures show the percentage of new dwellings receiving their CCC within two years of receiving their Building Consent dropped from 86% in August last year to 75% in August this year, meaning the number of new homes has dropped by about 10% since the numbers peaked in the middle of last year.

Davidson says in terms of underlying drivers, the Cordell costings team are continuing to see rising timber and metal prices, which are affecting framing and reinforcing.

This indexed model of construction costs allowed for standard build times. However completion timeframes have lengthened lately as some materials remain hard to procure. As the index covers a brick house, anything with timber cladding will have seen overall costs rise at an even faster pace.

Davidson says he wouldn’t be surprised to see the rate of construction costs accelerate further, potentially to double-digits by the end of the year, before it starts to ease up into 2023.

“One encouraging development in the past month or two has been the improvement in supply chain conditions, with plasterboard for example now much easier to find.

“This easing in cost growth will be important in the longer term so developers and households aren’t dissuaded from taking the new-build path which critically assists in boosting overall housing supply.”

Last month, Auckland Council data show 1,085 new residential parcels under 5000m² were created.

The month previously, 22% of new dwellings consented were houses, 18% were apartments and 60% were townhouses, flats, units, retirement village units, or other types of attached dwellings.

Building outside the rural urban boundary (RUB) is accelerating, with 1,774 of houses consented in August, but over the past 12 months, 94% of new dwellings consented were inside the RUB and 25% of dwellings consented were inside the 1500m walking catchments of the rapid transit, which is where the Government’s new medium density rules for councils are aimed.

1,085 new residential parcels under 5000m² were created in September 2022.

In the past 12 months, 11,805 new residential parcels under 5000m² were created – an average of 984 each month, while in September alone, 1,049 new residential parcels of all sizes were created inside the RUB.

While residential construction is still at a high, the council is reminding builders and construction companies to ensure they have building consent before going ahead with work – otherwise it could be costly.

Auckland Council field surveying building consents manager Jeff Fahrensohn says it is vital to have a building consent before commencing any work. “The consent has conditions that need to be adhered too, if not the building’s final Code Compliance Certificate could be at risk.”

Fahrensohn says many issues can usually be reviewed and resolved, but there are times where there is prosecution for serious breaches. This was the case for a building company who started work without council consent.

Platform Homes (PHL) started work on 26 townhouses in Flat Bush without council consent and told the court it had ‘jumped the gun’ and started building because it expected to get consent any day.

PHL was fined $32,500, which the council says sends a strong message to building companies and builders in general that it’s vital council consent is obtained prior to any work starting.

Fahrensohn says the council recognises the building industry is facing challenges with the supply of some materials and emphasises any substitute materials must be approved before being used.

“This is important as the substitute products need to meet the Building Code. A lot can be looked at on site and assessed for compliance, some others may require an amendment.

“If work goes ahead and the substitute product isn’t approved by the council as meeting the Building Code, it could, worst case scenario, mean the work has to be deconstructed, which is costly and will delay the construction.”

Tags: building