WHAT'S REALLY DRIVING UP RESIDENTIAL BUILDING COSTS?

By NZHJ May 17, 2019 Industry news

Updated: New report aims to disprove the assertion that it's materials and products that are driving up the costs of residential development.

The supply side of the industry has welcomed the release of a Fletcher Building-commissioned report by Deloitte Access Economics that we first started hearing about late last year.

The report, called Cost of Residential Housing Development: A Focus on Building Materials, addresses the costs of residential development on both sides of the Tasman.

Using robust third party data, Deloitte sought to quantify the key drivers to the cost of new residential housing development across a range of home types in Australia and New Zealand.

It also sought to explain the cost differences between residential housing in Australia and New Zealand and to what extent the structure of the New Zealand market drives the cost of building materials.

In terms of the cost of building a home in New Zealand, the report concludes that the cost of land and infrastructure have a greater impact on built cost than materials or products.

In terms of trans-Tasman costs, the report puts it that builders' margins and GST are the key drivers for the cost differences between Australia and New Zealand. 

Fletcher Building CEO, Ross Taylor, summarises: “When you break down the costs of residential development costs in New Zealand, land and infrastructure is the most significant cost at up to 35%.

"Building materials are up to 24%; and GST, government taxes and charges contribute up to 21%. These are the top three costs. Labour is a close fourth,”

Of the trans-Tasman cost comparison, Deloitte Partner, Linda Meade, explains: “It’s generally cheaper or similar to build in New Zealand than Australia if you compare the same house design.

“However, due to the fact Australia builds more standardised houses, has lower GST, and does not have as stringent seismic, fire and façade requirements as New Zealand, building in Australia is cheaper.”

Julien Leys, Chief Executive of the Building Industry Federation (BIF), says the Deloitte report is "a welcome piece of independent in-depth research that shows for the first time that housing construction costs (eg building materials and labour) are very similar and in some cases cheaper between New Zealand and Australia. 

"BIF has previously said that building construction costs are very similar between New Zealand and Australia so it is pleasing to see that this has now been validated by the Deloitte report

"The report unequivocally shows that land and infrastructure is the most significant cost in residential development – 32% of the cost for a standalone house in Auckland versus 19% for building materials overall. 

"The report also highlights that key building materials such as timber, steel and plasterboard actually contribute very little to the total cost of a house – these materials are approximately 1-4% each of the total cost of a house."

The Deloitte report also identifies that the level of competition in the New Zealand market is working very effectively, says Julien Leys, and that imports have acted as a brake on prices with many New Zealand building materials manufacturers and suppliers absorbing increases in input costs such as raw materials.

"This is proof that competitive pressure driven by imports has kept prices low and again this has benefited homeowners and consumers who expect to receive building products that meet New Zealand standards and conditions.

"Ultimately many New Zealanders want bespoke and non-standard products which are inherently more costly than standardised materials and designs manufactured at scale."

You can download the report in full from Deloitte's website.

 

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