NZ building costs reach new highs

by | Feb 3, 2022

The average cost of building a house in Marlborough – located on New Zealand’s South Island – has become about $80,000 more expensive within the last 12 months, recent consent data has revealed. According to local economists and builders, COVID disruption and inflation are driving up the value of new homes within the region.

A recent Stuff NZ report has revealed that 76 standalone houses that were consented in Marlborough in the third quarter of 2021 had an average value of $479,085. That was just the expected cost of construction, but did not include the cost of buying the section. Sections in Blenheim’s new Wai-iti subdivision were selling at auction for more than $400,000 last year, according to the report.

Peter Ray Homes Blenheim Director, Donna Lee said she was not surprised there had been a year-to-year increase in building costs. What did surprise her however was the size of the increase, she said.

“The increasing cost of materials was always a major on the cost to build. Bricks for example, a lot of bricks are made in Australia so they are imported. So when the price of bricks goes up in Australia, and then you have got to freight them to New Zealand, and there are shipping delays to deal with, and then there is the cost of transport, with trucks that require fuel,” Ms Lee said.

According to the report the industry remains in a state of uncertainty due to on-going delays, labour challenges, price increases and materials shortages.

Each unforeseen extra expense stacked onto every necessary material, all added up to make building a house that much more expensive, Ms Lee said.

“Builders and clients always wear the end cost. We are hamstrung by the manufacturers, they are hamstrung by staff being in Covid-19 isolation, and the cost of everything they need going up. And it is not just one thing going up, it is everything,” she said.

“I think everybody is sort of wary at the moment, everybody across the board, wary of delays and unexpected costs. When interest rates were low people were [upgrading] their homes a lot, but now they are not so much. Now they are being cautious about what they do.”

“It is a trying time for everybody really. I have spoken to other sub-trades and building companies and everybody is just trying to do their best by their clients,” Ms Lee said in the report.

Builder Rob Blick said he believed the costs quoted in consent applications would likely be conservative because prices were rising so fast, and budget blow-outs were common in construction anyway.

“These are projects still in the council process. The cost will just keep going up during the build.”

Mr Blick said he noticed some contractors were now only giving quotes valid for seven days, instead of the usual month or so, because prices were changing so fast.

“How are people meant to get pre-approved at the bank when a quote is old after seven days? Every day, the goalposts shift. There is definitely a crunch coming. It is going to be an interesting time for builders and merchants trying to keep work going, and coming in affordably,” Mr Blick said in the report.

Marlborough Chamber of Commerce Growth Adviser Alistair Schorn said along with global supply chain disruptions, Auckland-based manufacturers were also operating well under capacity due to last year’s lockdowns.

However, the high number of consents was a positive sign, he said. Including units, apartments and townhouses, there were 90 residential consents in the third quarter of last year, the second-highest quarterly figure in the last 10 years.

“What the data does not tell us, though, is how much additional pressure these consents put on the local construction sector, which already seems to be running at close to full capacity. It will also be interesting to see if these higher consent numbers are maintained over the next few quarters.”

“A concern for people who are considering a residential new build project, is the potential for price increases under sunset clauses, as we have seen reported in Auckland over the past few weeks. This is especially relevant in an environment where the cost pressures in the construction sector are increasing on all sides,” Mr Schorn said in the report.

Sunset clauses were typically used for houses bought off-the-plan to protect buyers by allowing them to pull out at certain points from a project suffering long delays, however, some vendors were using them to void contracts, asking them for extra money to keep a project on track, or cancelling the project.

Marlborough’s labour market was also very tight, according to Mr Schorn, with unemployment in Marlborough estimated at 2.8 per cent in the third quarter of 2021.

Marlborough’s median house price reached $700,000 in December, according to the Real Estate Institute of New Zealand, which was more than Canterbury on $680,000 and less than Nelson on $830,000, while Wellington hit a record $1 million.

In December 2020 Marlborough’s median house price was $571,000. According to the report, Marlborough was the only region in the country to see an annual uplift in sales count, with an increase of 5.1 per cent, from 78 properties sold in December 2020, to 82 in December 2021.