Slowing price rises for key materials and fewer houses built sees building inflation peak

Building inflation looks to have peaked, according to a new survey of the construction industry.

The Cordell Construction Cost Index (CCCI) rose 0.6 percent for the three months June, unchanged from the first quarter, taking the annual price increase down to 6.4 percent from 8.5 percent, the lowest since the end of 2021.

The index is based on building an average three bedroom single storey house with two bathrooms in brick and tile.

CoreLogic Senior property economist Kelvin Davidson said the main factors were slowing price rises for key materials and fewer houses being built.

"The widely-anticipated slowdown in consents has alleviated some pressure on the construction materials supply chain in recent months while also slightly reduced workloads for builders, which means that the growth in costs isn't as intense as it was in 2022.''

The price of structural timber had fallen and steel framing had been steady or a shade lower, largely as demand eased and supply constraints eased, he said.

The overall decline of costs might have been bigger but for changes to the building code which increased the costs of insulating a house, he said.

However, with the number of building consents falling 7.9 percent in the year ended March on the year before as demand slowed pressure on builders and building costs would also lessen.

"The expectation is the quarterly rate of change in the CCCI will continue to grow around 0.5 percent for the rest of 2023, taking the annual change to less than 3 percent by the end of the year," Davidson said.

"To be fair, new builds probably won't get cheaper. But at least from a buyer's perspective the cost won't be rising so quickly either."

One slight wild card was the effect of immigration which could be a source of labour for the industry, but also a source of demand for houses.

However, Davidson said the pipeline of work remained solid, and the tax breaks available for new build housing developments should give some confidence to new projects.