What is pushing up house construction costs?

The cost to build a house surged 1.3% over Q1 2021 and this growth is expected to continue, CoreLogic Chief Property Economist Kelvin Davidson explains

The March quarterly growth is the highest rate of construction cost inflation since Q1 2019, and far above the 0.6% and 0.4% increases throughout Q3 and Q4 2020 respectively, according to CoreLogic’s Cordell Housing Index Price.

The Arcadis 2021 International Construction Costs report also found Auckland and Christchurch to be in the top 20 most expensive cities to build.

We may now be seeing the clear impact of a busy construction sector flowing through to faster cost rises.

Q1 bounced up to 1.3% growth and early indicators are that we will see a continuation of this growth have a continuing impact on the cost of building in the near future.

When combined with potential COVID-related shipping problems, and also the recent publicity about shortages of structural timber domestically, the potential for faster and greater cost rises is accentuated.

It is also important to note that work on consented alterations & additions is also running at the highest levels in 10-15 years, let alone any projects being done that don’t require consent. That just reinforces how busy the industry is, and is being driven partly by the fact that many owner-occupiers can’t find their ideal next property (due to the lack of listings) and so are choosing to renovate not relocate.

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 next week 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.

in our Q2 report.

Annual residential construction cost inflation is also back on the rise, up to around 3.3% in the March quarter after falling to under 3% in Q4 2020 from a peak of 6.9% in Q4 2017.

The construction sector is proving to be a real bright spot in the economy; especially the residential segment. New dwelling consents annually are 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