Rotorua’s homebuilding budget explodes by $500,000 as cost of building homes jumps 20% in a year

A Rotorua couple have blown their $500,000 dream home budget for a home that is still unfinished after two and a half years.

They are caught in the building crisis where lots of houses and land have
jumped 20% in one year. A company says a Tauranga house that cost $750,000 to build a year ago now costs $900,000.

Barry Grouby said he purchased land at Lake Tarawera in 2011 and drew up plans in 2012 for their three-bedroom, two-story home. It then took years of “mind-boggling” paperwork and engineering issues before the floor failed about two and a half years ago.

“Then Covid hit and it all slowed down. I had this house designed for me, my wife and my three boys and now two of my boys have bought their own house. I’m 53 and I thought I would be celebrating my 50th in the house.”

“There’s been so much stress and problems…it’s exhausting.”

Grouby said the budget had blown by $500,000 and he had new ovens, refrigerators and appliances that were still in their boxes and had been purchased a year ago.

He advised others to get someone to manage their entire project from start to finish, including consents and potential issues with the site.

He hadn’t lost hope and had his fingers crossed for an August end date.

”The location and the view we have are absolutely amazing. My wife and I go out every Friday and stand on the deck, we used to stand on the dirt but still find it hard to see the end of the tunnel. ”

A Tauranga woman, who asked not to be named, said the construction of her home had been fraught with difficulties.

The $800,000 home she was building with family members was due to be completed in September last year. This was pushed back due to Covid but they were still waiting for Gib, which was ordered in January, and the site was down.

Their project manager had changed three times and although their contract was fixed, an escalation clause meant their budget skyrocketed by tens of thousands of dollars.

”It’s a huge pressure. If we have to keep paying rent while we build, I don’t know if we can afford to finish it. The stress is overwhelming.”

The NZ Institute of Quantity Surveyors warned that some small construction companies could collapse as problems plague the industry, while the New Zealand Certified Builders Association said price escalation was occurring at an alarming rate and that some materials were increasing every week.

Structural steel jumped 64% in one year, alongside a long list of other products, from structural steel up 48% to fiber cement siding at 32% and reinforcement at 30%.

New Zealand Certified Builders Association president Malcolm Flemming said the rise in prices was happening at an alarming rate, with product price changes by suppliers sometimes changing weekly.

Inflationary pressures on materials and wages looked set to continue.

“This increase in the cost of construction, combined with the increase in loan costs and the tightening of bank lending policies, will reduce the size of the pool of potential people able to build a house.”

Classic Builders Group director Peter Cooney said the market had softened and buyers were taking longer to make up their minds.

”Property prices soared last year as the lack of sufficient supply pushed competition into the market, driving up selling prices, but that competitive advantage has disappeared. We know that if the price of our houses is good, we will continue to meet the demand.”

Construction costs have risen by at least 20% over the past year, he said.

The large increase would impact residential, industrial and commercial construction, compounded by an additional increase of more than $20,000 in costs due to new building code regulations.

Cooney said Classic Builders always plans six months ahead and plans to be as proactive and responsive as possible, working with its suppliers and contractors.

Venture Developments director Mark Fraser-Jones said market conditions were tough for homebuyers and builders.

“Obvious headwinds such as rising interest rates and supply constraints have significantly increased the price and ongoing cost of a new home to the consumer. These issues are expected to continue for the foreseeable future.”

The pipeline of homes sold and still to be built remains very high. The ability to deliver homes on time due to material constraints was a major issue and was expected to continue through 2023, he said.

He expected prices to plateau somewhat in 2022, but I haven’t seen prices come down as supply has remained extremely tight and the Bay of Plenty has remained a great place to live.

Lianne Simpkin, branch manager of Barrett Homes Bay of Plenty, said she had advertised a new development in Domain Rd, Papamoa, which was selling fast.

She said a new approach was urgently needed to respond to the growth of the construction industry.

”We need a commitment to prioritize reforms to respond to market conditions. The government and the construction sector must intensify their collaboration to enable better resilience of the industry.”

Stride Builders owner John Stride said it was a “scary time”.

He built a house for a client last year for $450,000 and said it would cost $570,000 now.

Meanwhile, a young couple had to pull out of their new build due to material prices rising 40%.

Stride said the company focused on high-end architectural builds and worked for more than a year.

“I think we’re lucky because there’s going to be a major downturn.”

The chairman of the New Zealand Institute of Quantity Surveyors, Martin Bisset, said clients had to pay a fair share of the construction cost up front just to secure building materials.

“Generally, banks don’t start financing until the work is on site, so the client has to find the cash out of their own pocket until construction starts on site.”

He said delays prolong projects, but under a fixed-price contract, any additional on-site costs such as site management and scaffolding may not be recoverable from the client and “will eat away at builder’s profits.

“With the collapse of Armstrong Downs in Wellington, it is very likely that smaller businesses will follow suit, especially if they have entered into fixed price contracts, with no way of securing increased material costs.”

All project designs landed on a quantity surveyor’s desk months before they were built, and it was their job to inform the client of the cost of construction perhaps a year or more into the future.

”In the past it would be 2-4% per year, but now it’s more like 15-20%.”

Brendon Gordon Architects director Brendon Gordon said each project had its own set of parameters, challenges and outcomes.

He acknowledged that the odd project was being parked, but the company had an array of projects underway, including beachfront dream homes on the mount, new builds on the waterfront from Tauranga, the gentrification sites of Otumoetai and the beach houses of Whangamatā and Coromandel.