Residential construction costs grew at their fastest rate in two years at the start of 2021 and there is no sign of a slowing.
A construction worker at a housing development (file). Photo: RNZ / Kim Baker Wilson
Property research firm Core Logic's Cordell Housing Index Price (CHIP), which measures the rate of change in [https://www.rnz.co.nz/programmes/the-detail/story/2018793290/why-it-costs-so-much-to-build-a-house construction costs', rose 1.3 percent in the three months ended March, compared with 0.4 percent increase in the prior quarter.
It was the highest rise since March 2019 and pushed the annual growth rate from 2.9 percent to 3.3 percent.
CoreLogic chief property economist Kelvin Davidson said a perfect storm had come together to drive costs higher.
"The key thing for construction costs is really the tight capacity in the industry, we've seen building consents running at historically high levels, so the industry is very busy ... according to a lot of reports [it is] running at full capacity, so when you see that in markets and sectors you tend to get cost rises."
The unprecedented demand had been compounded by skills shortages and disruptions to supply chains, Davidson said.
"I think we've probably seen the low point for the cost inflation and certainly the anecdotal evidence that I am hearing ... is that there's going to be further upward pressure on costs unfortunately."
Davidson said the situation would put pressure on the industry's ability to deliver new houses.
"We've still got shortages of housing and we need the residential house building sector to continue at these high levels for a long time yet."
"Unfortunately, when you see cost growth going up, you see capacity pressures coming on in [the] industry, its hard to grow any further and any cost pressure we see will tend to dampen demand a little bit."
Davidson acknowledged the developments would be a boon for builders.
The construction cost index, CHIP, is based on the comprehensive collection of labour, material, plant hire and subcontract costs covering all major trades.