Photo: RNZ/Calvin Samuel
Record numbers of properties listed for sale may be putting people off building new.
Residential construction costs are rising at nearly the slowest annual rate on record, Corelogic's Cordell Construction Cost Index indicates.
It recorded a growth rate of 0.9 percent over the past year in its most recent update.
In the first quarter of this year, the cost of a typical new dwelling rose 0.3 percent, down from 0.6 percent in the previous quarter and well below the long-term average of 1 percent.
CoreLogic chief property economist Kelvin Davidson said it was the second-lowest annual rate of growth since the index began in 2012.
At the peak in the Covid years, annual growth was more than 10 percent.
"But this is a moderation, not a retreat," Davidson said. "Labour doesn't tend to get cheaper, and while materials pricing has flattened out, we're not seeing any decline in the overall cost to build."
Davidson said there was a "huge" amount of stock available for sale on the market. It was - probably the highest in a decade or so.
Kelvin Davidson. Photo: SUPPLIED
"If people are thinking about a new build or a project, they could find something that's already available - there are so many already available that they tend to go down that path.
"A certain proportion of existing listings on the market are not necessarily old houses, either, you can buy a recently completed dwelling that's listed - you don't have to go down the project path."
Existing properties also tended to be cheaper than new builds, he said.
"If you can find what you want among older stock and it's cheaper, you can see what people would mostly be doing. It is tricky for the new build sector at the moment."
He said demand had also been slowed by higher interest rates recently and the fact that it could take time to get a building project under way. But he said the construction market could be approaching a turning point.
"There's a bit more optimism coming through for the construction sector, interest rates are down - that could take longer to flow through but will encourage new builds in the next little while."
He said the fact new builds were exempt from loan-to-value restrictions and debt-to-income ratios could also help boost demand.
In March, the cost of roof flashing and sheet metal rose 3 percent to 4 percent. Structural steel was up 1 percent while kitchen cabinetry fell 2 percent. Davidson said these changes reflected a sector returning to more normal patterns after several years of disruption.
"We're well past the extremes of 2021 and 2022, where costs surged across the board. These days, we're seeing more nuanced movements, driven by specific supply and demand factors rather than industry-wide pressure."
Overall, nationwide consent volumes were at about a third of their peak.
"Some builders now have spare capacity, which is helping cap further price rises," Davidson said. "Construction activity appears to have stabilised, however any signs of a recovery remain tentative."
He said if activity picked up again, costs could start to rise more quickly again.
"The key trend this year is construction costs are no longer spiralling but they're also not falling. For now, we're in a holding pattern, which will come as a welcome relief for builders, developers and households alike."
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