Facts at odds with claims on costs of new home building

16 April, 2013
Facts at odds with claims on costs of new home building

Cost increases in the supply of new housing in the Canterbury region have much more to do with aspects other than material and product prices says the Building Industry Federation.

“There are a number of reasons which together are key factors in Canterbury new build cost hikes,” said Bruce Kohn, Chief Executive of the Federation.

“These include increases in the total cost payable by builders and home owners prior to construction, land costs, sub-contractor charges that are influenced by fluctuations in base petroleum prices, regulatory changes imposed in response to the need for housing better capable of handling seismic events and some materials costs.”

Responding to claims by Ngai Tahu Holdings as that new housing costs at Wigram south of Christchurch had risen 16 percent in one year primarily because of materials cost rises, he said industry analysis suggested the claim was well wide of the facts.

“We’ve had some industry analysis carried out that is based on a new build cost of $285,000, excluding land, at an average size of 190 square metres and a cost rate of $1500 a square metre.

“It is normal for there to be a 40:60 split between materials and labour (carpentry and specialty trades) which gives attributable costs of $114,000 and $171,000 respectively. It is extremely difficult to accept that within this split there has been a lift in prices of materials over one year of anything near 16 percent – approximately $45,000.

“Research now being finalized shows that the most significant cost increase of total build cost (developed land and building cost) over the last five years has been associated with developing sections for building on.

“There has been estimated cost rises of about $15,000 attributable to regulatory seismic requirements in respect of foundations and bracing. Additionally there has been a lift, estimated at about $10,000, in compliance requirements (relating to geotech reports, engineering reports, consents, scaffolding, documentation and site safety); labour rate changes, especially in those trades dealing with wet areas, estimated at some $10,000, and material cost rises estimated at approximately 2 percent of the total cost and four percent of the materials proportion – particularly materials impacted by changes in base petroleum pricing. A provision of $5000 for customer specification changes may be added.

“Our question for land bank holders, like Ngai Tahu Holdings, is what other costs have risen in relation to land development over the past year that would contribute to increases in the price of a house and section in Wigram?

“Underperformance of earlier constructed buildings in Christchurch shows the folly of focusing on one element of total build cost. Analyses in the housing affordability debate show that the deterioration of the position faced by New Zealanders seeking home ownership is not one dimensional. Contributions have come from regulatory cost increases to better ensure build quality, inflationary cost creep in land development costs, the dynamics of supply and demand on overstretched subcontractor labour availability and, certainly, some materials price increases.

“The Federation supports an open supply chain market, with both imported and locally produced products competing for business. Procurement is an enterprise’s responsibility. It goes without saying that those who procure predominantly on price widen the risk of supply not being fit for purpose and becoming exposed over the life of their structures to not having the backing of a reputable brand and the benefits of integrated systems supply.” – ends

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