CoreLogic’s latest Cordell Construction Cost Index (CCCI) shows that the annual growth over the past 12 months has also slowed to just 1.1%, down from 2023’s rise of 2.4% and also well below the spike of 10.4% in 2022.
CoreLogic Chief Property Economist Kelvin Davidson said it was little surprise that construction cost growth has slowed in the past 12-18 months.
"The previous COVID-related pressures on materials supply chains such as plasterboard are no longer an issue, and there’s also been a wider slowdown in the number of new dwellings consented and actual residential construction work being undertaken," he said.
"As a result, there’s been reduced pressure on the industry’s capacity, which naturally dampens cost growth, both for materials and labour."
He pointed out that although the downturn in the construction sector has been deep and prolonged, it started from a very high base, meaning that over the longer-term recent levels of dwelling consents and construction activity have remained above previous troughs – including from right after the GFC.
In terms of specific product lines, the cost trends in Q4 remained mixed.
For example, carpet saw a 3% increase in the three months to December, with wall insulation up by 3% and plasterboard rising by 4%. On the other hand, external timber products dropped by -5%, and kitchen joinery costs were down by -3%.
Looking ahead, Mr Davidson said construction sector activity is unlikely to suddenly surge higher, especially with the slowdown in population growth due to the decline in net migration.
"Construction conditions look set to improve in 2025 as mortgage rates drop, but overall cost growth may still remain relatively controlled."
"There are also signs in the new dwellings data from Stats NZ that a floor may have been reached and that a rise in construction is likely in 2025."
Elsewhere in the market, Mr Davidson noted the loan to value ratio (LVR) rules continue to incentivise property buyers to look at new-build dwellings, while the debt to income (DTI) ratio restrictions do the same.
"DTIs aren’t having much impact right now, but with mortgage rates falling they’re set to become a greater consideration in 2025, and could result in a relative shift in property demand away from existing dwellings and towards the new-build segment."
CoreLogic New Zealand