Price sting: How much will it cost to build a new home in 2024?

1. Construction costs are flattening out

After a post-Covid surge in the cost to build a new house, the slowdown in construction volumes (which has helped ease some pressure on industry capacity) and also the return to normal for materials supply chains are now seeing that cost growth fade pretty sharply. Indeed, the Cordell Construction Cost Index showed only a 2.4% rise in building costs for a standard dwelling across NZ in 2023 (excluding land), the slowest rate of annual growth since late 2016.

That said, costs are still rising – so it’s not getting any cheaper to take on a new project, especially since wages typically account for 40-50% of the overall bill. But at least households who are thinking about a new-build in 2024 can at least be a bit more confident that the costs won’t run away on them while they plan and secure finance etc.

2. Let’s not panic about dwelling consents just yet

Speaking of construction, last week Stats NZ reported that there were 2,958 dwelling consents in November, down 36% from the same month last year, and the 14th fall in a row. The annual running total is now 38,209 (compared to May 2022’s peak of 51,015), the lowest figure since October 2020. We also know some of these consents won’t ever turn into actual houses, while demolitions of existing property reduce the overall net boost to the housing stock too.

However, before getting too pessimistic, these numbers are still quite high – e.g. the peak for the annual consent total in the early 2000’s building upswing was around 33,000. Similarly, consents per 1,000 people are currently sitting at a touch more than seven per year, still slightly higher than the long term average. And if you look at the recent results, the monthly average of around 3000 lately still isn’t bad, annualising to around 35-36,000 – which is broadly the consensus on how many dwellings the industry might actually be able to build in a given year. So, yes, consents have fallen. But new supply hasn’t disappeared altogether.

3. Labour market continues to truck along

The number of filled jobs across the country rose by 0.1% in November, a small increase, but still a continuation of a lengthy run of employment growth – indeed, there’s only been one fall in the past 20 months. The number of jobs is also 2.7% higher than a year ago, or nearly 64,000. Granted, there are some risks that employment could drop a bit more significantly this year, especially if we continue to hover around economic recession. But house sales and prices are still being supported by the labour market, for now.

CoreLogic chief economist Kelvin Davidson: "It’s not getting any cheaper to take on a new project." Photo / Peter Meecham

4. Shorter fixes are still the most popular mortgages

Reserve Bank data shows that 72% of new loans (excluding people who are repricing existing mortgages) in November were fixed for up to two years, split 34% for up to one year, and 38% in the 1-2 year window. With another 18% of loans on floating rates, this means only 10% of borrowers took out loans longer than two years in November. Given that any rate cuts by the banks in the second half of December tended to be for those longer term fixes, it’ll be interesting to see how borrowers reacted to those shifts (if at all) – when we get the data on 8th February. The Reserve Bank will presumably be keeping close tabs on all of this too, as a fall in longer term mortgage rates – if acted upon by borrowers – could undermine some of their efforts to curb inflation.

5. Rents and migration are still hot topics

It might be a new year, but many key property themes remain the same. This week, Stats NZ will refresh the rent price data (December) on Thursday and net migration figures (November) on Friday. Very strong net migration over the past 6-12 months has clearly boosted property demand, and has pushed up rents at an above-average rate. This situation won’t last forever, but there’s every chance that this week’s data will still show ‘more of the same’ – good for landlords, unwelcome for tenants.

- Kelvin Davidson is chief economist at property insights firm CoreLogic