Quarterly growth in the building industry has exceeded 1 percent since 2022. File photo. Photo: 123rf.com
The building industry has seen slow growth over the past 18 months, as a result of tax changes, high levels of existing stock on the market and credit-constrained buyers.
CoreLogic's latest Cordell Construction Cost Index (CCCI) recorded a 1.1 percent increase in the September quarter (Q3), reversing a second quarter drop.
The CCCI report measures the rate of change of construction costs within the residential market for a typical, 'standard' three-bedroom, two-bathroom brick and tile single-storey dwelling.
CoreLogic chief property economist Kelvin Davidson said it was the first time quarterly growth had exceeded 1 percent since December 2022, with an annual growth rate at 1.3 percent, which was well below the long-term average growth rate of 4.3 percent.
"The industry has come off extreme highs recorded during Covid, and building activity remains solid when compared to previous cycles," Davidson said.
"Even so, it does look like there is capacity opening up, which has reduced the pressure on costs."
Q3 saw a drop in sub-contractor charge-out rates and many plumbing materials such as PVC piping, but the cost of materials such as window hardware and kitchen joinery rose over the period.
"With such an elevated stock of existing listings, there's less incentive for buyers to consider new-build properties," Davidson said.
"The shortening of the brightline test and the reinstatement of mortgage interest deductibility for all properties regardless of age has also lessened the appeal of new-builds."
CoreLogic data indicated there were currently about 26,000 properties listed for sale, compared with 23,000 at the same time last year and double the 13,000 available in 2021.
Davidson said actual construction workloads - measured by 'work put in place' - were down around 15 percent from their peak.
The supply pipeline had also slowed, with annual dwelling consents peaking at about 51,000 in May 2022 before falling 34 percent to 33,632 in August this year.
But Davidson said the Reserve Bank's newly introduced debt-to-income ratio restrictions - which exempted new builds - could help stimulate demand in this segment.
"While the outlook for the sector isn't particularly buoyant in the short term, signs of life might just be starting to emerge, and further interest rate cuts and improvements in the labour market are also likely to have a positive impact on construction activity into 2025.
"Developers may feel more confident to increase supply if these changes, combined with falling mortgage rates, create a relative shift in demand towards new builds over the next 12 to 18 months."
He said the industry was watching closely for any signs of a turnaround in 2025.
Sign up for Ngā Pitopito Kōrero, a daily newsletter curated by our editors and delivered straight to your inbox every weekday.
