New Zealand homebuilding costs post first drop in over a decade

HOMEBUILDING costs in New Zealand fell for the first time in at least 12 years, led by a drop in material costs as supply chain disruptions eased and elevated interest rates softened demand.

Construction costs declined 1.1 per cent in the second quarter from the first, said CoreLogic New Zealand – a property data and analytics provider.

This marks the first drop recorded in a series that began in 2012. Annual growth for the first six months of the year was 0.6 per cent – also the lowest on record.

The Reserve Bank of New Zealand’s (RBNZ) aggressive monetary tightening and weaker economic growth have sparked falling house prices and lacklustre consumer confidence, slowing the demand for new homes.

On Wednesday, the RBNZ left its official cash rate – the overnight interest rate set by the reserve bank – at 5.5 per cent.

It acknowledged that high borrowing costs are curbing demand and inflation, prompting investors to increase their bets on rate cuts later this year.

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“The downturn in workloads in the construction sector has eased the pressure on capacity and that’s flowed through to reduced building costs,” said CoreLogic chief property economist Kelvin Davidson.

“Coupled with a slowdown in the growth of average hourly wage rates, the flattening of building materials costs has also caused a reversal in trends from the rapid growth in construction costs in the past few years,” he added.

The index – which tracks the cost to build a standard single-storey, three-bedroom, two-bathroom brick and tile standalone dwelling – recorded falls across several key materials.

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This included structural steel and kitchen joinery, tapware and electrical light fixtures.

CoreLogic expects construction costs to remain subdued this year. This will largely be driven by softer new dwelling consents – which are written approvals to carry out building works – and weak housebuilding activity.

“The hope is that more stable economic conditions and lower interest rates in 2025 will help revive housebuilding activity,” Davidson said. BLOOMBERG