Home construction costs increase by 2.2%

Home construction costs rose 2.2% in the June quarter according to CoreLogic’s Cordell Housing Price Index (CHIP), largest increase on record – Chief Real Estate Economist Kelvin Davidson explains why.

The construction sector is operating at full speed and pressures have been emerging for several months. Labor shortages in housing construction have been reported, along with strains on supply chains and material availability.

This is now starting to reflect more clearly on the prices that manufacturers have to charge their customers. Where some suppliers had previously absorbed cost increases or substituted materials where possible, we are now seeing the costs passed on to the consumer.

This strong quarterly increase now pushes the annual growth rate to 4.5%; a significant jump of 3.3% in the 12 months to March 2021 and the largest annual increase since the first quarter of 2019 (4.7%).

CoreLogic cites that the number of new housing approvals remains very high, due to smaller housing such as townhouses, which suggests that there is unlikely to be much reduction in cost pressures in the area. industry for a while.

In addition, work on agreed changes and additions has also been happening at the highest level for over a decade, not to mention ongoing projects that do not require consent.

We expect the CHIP Index for Q3 (and beyond) to show further price pressure as the annual growth rate continues to rise.

It is difficult to give exact figures on how fast prices might rise, but what is clear is that anyone who wants to build a new home will face higher costs in the future – which in their opinion. turn will eventually dampen demand and therefore remove some of these pressures. .

CoreLogic researches, tracks and reports the costs of materials and labor that flow through its Cordell construction solutions to help businesses make better decisions, easily estimate rebuilding and insurance quotes, and, finally, to effectively take ownership of the risks.

Tom Coad, product manager of CoreLogic NZ, warns that while construction costs have been steadily rising, the sudden rise in construction cost inflation highlights the need for homeowners to ensure that their insurance coverage keeps pace with these rising costs.

“All insurers provide rebuilding calculators like Cordell Sum Sure, which we’ve updated to allow consumers to track the impact of these construction cost changes on their own homes,” Coad explains.

“As a homeowner, it’s so important to make sure your biggest physical asset has the right level of insurance so that you don’t get left behind or unable to rebuild or replace your home due to damage. inadequate coverage.

“In our experience, increasing the sums insured for a few hundred thousand people can cost a lot less than you might think. “

As New Zealand’s economic recovery continues with the expansion of most sectors, inflation is now a key issue. This acceleration in housing construction cost inflation is just another ammunition for the RBNZ to raise interest rates as it tries to ‘get ahead’ on containing general hikes. prices.

The CHIP report measures the rate of change in construction costs in the residential market and covers single-storey and two-storey single and semi-detached houses.

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