What is the rising cost of building a house?

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March’s quarterly growth is the highest rate of construction cost inflation since the first quarter of 2019, and well above the increases of 0.6% and 0.4% in the third and fourth quarters of 2020 respectively , according to CoreLogic’s Cordell Housing Index price.

The Arcadis 2021 International Construction Costs report also revealed that Auckland and Christchurch were among the 20 most expensive cities to build.

We can now see the clear impact of a busy construction sector translating into faster cost increases.

The first quarter rebounded to 1.3% growth and early indicators indicate that we will see a continuation of this growth in our second quarter report.

Annual home construction cost inflation has also picked up again, hitting around 3.3% in the March quarter after falling to below 3% in the fourth quarter of 2020 from a peak of 6.9% in the fourth quarter of 2017.

The construction sector is proving to be a real beacon of hope in the economy; especially the residential segment. New housing consents follow their highest levels on record each year.

Our teams are also hearing, through their research and conversations, about rising material and labor costs as there are shortages and substitutions, and this is expected to have a continued impact on the cost of construction in the near future.

When combined with potential COVID-related shipping issues, as well as recent publicity about nationwide lumber shortages, the potential for faster and greater cost increases is heightened.

It is also important to note that work on consented modifications and additions has also been taking place at the highest level for the past 10-15 years, not to mention all the ongoing projects that do not require consent. This only adds to the activity of the industry and is partly due to the fact that many owner-occupiers do not find their ideal next property (due to lack of listings) and therefore choose to renovate and not to move.

Recent changes in government tax policy that encourage investors to target new construction may well increase demand in the sector and put further pressure on capacity and costs.

Time will also tell if the government budget revealed next week includes any other incentives or measures to increase housing supply. After all, all government-supported work competes with the private sector for scarce resources.

CoreLogic researches, tracks and reports construction price data flowing through its Cordell product solutions to help companies make better decisions, estimate reconstruction and insurance quotes easily and, ultimately, effectively appropriating risk.

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