Building cost inflation drops to lowest annual rate since 2015

• Building inflation at lowest since 2015
• Building inflation 0.6 pct in past three months, annual 1.5 pct
• Supply chains returning to normal, some material prices falling
• Builders cut margins to get jobs, but may change

Building cost inflation has fallen to its lowest level in nearly a decade as material costs and supplies settle back to normal, and builders cut their margins to get jobs.

The latest QV CostBuilder showed the costs of building a standard three-bedroom house in six main centres rose 0.6 percent in the three months ended November, double the rate in each of the previous three quarters.

The annual rate of 1.5 percent was the lowest since the series was started in 2015 and compared with an annual rate of 1.8 percent in June, and a peak of nearly 21 percent in 2022.

QV CostBuilder quantity surveyor Martin Bisset said stability has returned to the house building sector.

"Many of the catalysts behind the rapid residential construction cost growth we saw throughout the early years of the pandemic are now no longer a major factor."

"Record low interest rates are long gone, house prices have generally been on the wane for some time, supply chains have been re-established, and population growth has slowed," he said.

QV's CostBuilder is based on the average cost on more than 60,000 construction items, but the final build cost would depend on factors such as the finishes, layout or the size of the garage.

In the latest reading some steel products and framing were cheaper, but exterior walls and ceilings were more expensive.

Chasing work

Another factor seen keeping prices in check was the sharp fall in new house building, with the number of consents issued in the year ended October falling 16 percent on the previous year and down 33 percent on the market peak in late 2022.

QV spokesperson Simon Petersen said with less demand builders were most likely cutting their margins to get work.

"Builders and contractors are having to put their best foot forward and compete for work and pricing is reflecting that."

He said there was optimism about a pick up next year but also a note of caution by the slight increase in the index over the past three months.

"That could be a sign of positivity with people optimistic that interest rates are only going to go in one direction so they're starting to price their work up," Petersen said.