New home consents have slipped 25% in a year, signalling tough times for the residential construction sector – and new home buyers.

There were 3,058 new homes consented in July, down a quarter on July last year, according to Statistics NZ home consent data.

Michael Heslop, Stats NZ construction and property statistics manager, said fewer new homes were consented in each month of 2023, compared with the same month of both 2022 and 2021.

  • 1,183 stand-alone houses consented – down 32%
  • 1,875 multi-unit homes consented – down 21%

Builders are feeling it and worry about rising costs and building delays. A recent ANZ Business Outlook survey showed a net 90% of residential builders expected activity to decline – the worst result on record.

Rising costs biggest concern; finance is also problematic

The Registered Master Builders’ annual State of the Sector survey highlighted rising costs as the biggest problem for builders. But getting finance was also tough.

David Kelly, Master Builders chief executive, said people were thinking twice about whether now was the right time to build a home.

“Finance and customer demand go hand-in-hand. With inflation and interest as high as they are, people are thinking twice about building a home,” he said. “The consequence of this is that it acts as a bit of a handbrake for the residential construction sector.”

Bank says don’t panic

While the slowdown could have consequences for Kiwis looking to get on the property ladder, Westpac economists say the fall in consents over the past year had been flattening off.

“In the year to July, 43,500 new dwellings were consented. That was down slightly from the level we saw last month,” Westpac said. “Consent issuance is now running at levels that are around 15% lower than those we saw last year.”

The rise in interest rates and building costs, coupled with falls in house prices, were possible contributing factors to prospective buyers stepping back from the market – and perhaps even discouraging developers from launching new projects.

More optimistically, the recent flattening of dwelling consents points to a bit more stability.

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Pressure on the construction materials supply chain and builder workloads appears to be easing.

“The growth in costs isn’t as intense as it was in 2022,” said Kelvin Davidson, CoreLogic’s Chief Property Economist.

Davidson said timber prices had stabilised in 2023, with some structural timber costs falling. Similarly, metal prices have also remained steady or fallen slightly.

However, changes to the H1 energy efficiency and insulation standards, which kicked off in May this year, could have the potential to add 3% to 5% to the overall cost of a standard build.

“The expectation is the quarterly rate of change in the CCCI (Cordell Construction Cost Index) will continue to grow around 0.5% for the rest of 2023, taking the annual change to less than 3% by the end of the year,” he said.

“That’s not going to mean the cost to build a new home is going to be cheaper, but it does provide some reassurance to buyers that costs won’t increase at the same rapid rate we’ve experienced in the past two years.”

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