New Zealand home construction costs advance at a record pace

NEW Zealand posted a record increase in the cost of home building in the first quarter, reflecting higher wages and shortages of timber and other key components.

Construction costs jumped 2.4 per cent in the 3 months through March, surpassing the previous fastest gain of 2.2 per cent in the second quarter of 2021, CoreLogic New Zealand said Wednesday (Apr 20) in Wellington. From a year earlier, costs surged 7.3 per cent - also the fastest gain since the gauge began in 2013.

The increase was underpinned by higher prices for timber, structural products and metal, while wages are climbing as firms work to full capacity, CoreLogic said. The gauge is based on the cost of building a 200 square brick and tile house including labour, materials, plant hire and sub-contractors.

Higher construction costs are contributing to a surge in inflation in New Zealand, with a report tomorrow forecast to show prices rose 7.1 per cent in the year through March. Reserve Bank governor Adrian Orr on Tuesday said he expects interest rates will keep rising as the central bank seeks to contain inflation expectations.

While higher costs and rising interest rates may prompt some to forgo new builds, there is unlikely to be much respite for the construction industry, according to CoreLogic's chief property economist Kelvin Davidson.

"Simply based on the pipeline of dwelling consents already approved, builders will be busy for some time to come yet," he said. "I wouldn't rule out a period of double-digit cost inflation into next year." BLOOMBERG