House prices are unlikely to fall on the dip in construction costs. Photo: RNZ / Cole Eastham-Farrelly
The latest Cordell Construction Cost Index shows construction costs rose by half a percent in the September quarter, which is the lowest figure reported since the fourth quarter of 2020.
The drop in building costs coincides with a 27 percent drop in the number of building consents in August.
Master Builders chief executive David Kelly said the drop in consents reflected tougher economic conditions, with the official cash rate twice what it was a year ago at 5.5 percent.
He said the drop in the number of building consents to a more normal level would increase competition in the building industry, but it was unlikely to lead to deep price discounting.
"It's not going to massively drop the cost of building because builders still need to make a profit and the risk that builders have faced in the past, is if they try to drop too fast to just to buy some work, then they get into trouble," Kelly said.
"And I think most builders now realise they've still got to make a margin."
However, Kelly said there would likely be a shift in demand for smaller new builds, as consumers continued to adjust to the higher interest rate environment and the increased cost of home ownership.
"And that's about both cost and also people's lifestyles," he said.
"There's definitely interest in people building their own home.
"I think what you are seeing in some cases is consumers cutting their cloth to meet their income."