Midway through last year I wrote about some of the market conditions and suggested that it was a good time to initiate a new building project at that time.
This month I’ve reviewed the factors at play that reinforce my previous conclusion – if you’re looking to build, now is a great time to start planning and design with a view to building in late 2024 or 2025.
The latest inflation figures from Stats NZ show that inflation for the year ending December 2023 was 4.7 per cent, down from 5.6 per cent the previous quarter and the peak of 7.3 per cent in the June quarter 2022. This is still far too high and some way from the Reserve Bank’s target bracket, but moving in the right direction at least.
According to Interest.co.nz, advertised interest rates for two years-plus peaked in December. While advertised rates for shorter terms have yet to fall, my personal experience has been that the six month rate my bank has offered me has fallen by nearly a full percentage point over the past two months.
Construction costs are growing at the slowest rate since 2016. Corelogic recently reported an increase in their construction cost index of 2.4 per cent in 2023, down from 10.4 per cent in 2022, and significantly lower than the average for the last decade of 4.5 per cent.
Demand and building activity have also dropped. A total of 38,209 building consents were issued in the year to November 2023, down 24 per cent from the 50,209 issued in the previous 12 months, and from a peak of 51,015 in the year ended May 2022 according to Stats NZ. Consent numbers in the Waikato were down 26 per cent for the same period.
Builders and tradespeople are looking for work. Suppliers are needing sales.
Going by the conversations we are having with others in the industry, builders and tradespeople, and consultants are actively looking for work and willing to price potential jobs competitively. A recent development is the addition of material suppliers to that list, which suggests margins throughout the supply chain are now being trimmed to secure work. Construction costs may not actually drop, but it’s likely that the next year or so represents the best opportunity to get competitive pricing.
House prices are also rising again. QV’s house price index suggests house prices are now recovering from the low-point in May 2023, though they remain approximately 15 per cent down from the previous peak at the end of 2021. While house prices don’t directly affect building costs, rising values may provide confidence in future resale values.
Putting all of these factors together, as I suggested last year, the next 12 months look to be a great time to build. By the time you’ve worked with an architect to design your house or project there ought to be plenty of contractors eager to provide competitive pricing for you.
Naturally, your first steps should be to talk with your accountant, mortgage broker, and a registered architect.
- Phil Mackay is Business Development Manager for Paua Architects.