Profits drive costs up

20:18, Jan 21 2014

The cost of building a new house is rising sharply in Canterbury and one of the reasons is building companies wanting to make more profits.

Data on the consumer price index (CPI) which measures the ups and downs of goods and services showedthe cost of building a new house in Canterbury jumped 9.5 per cent in the December 2013 quarter compared to the same quarter the year before.

That is well ahead of the national rise of 4.7 per cent which is influenced by Canterbury's rising new house prices.

Excluding Canterbury the cost of building a new house rose 3.9 per cent nationwide.

The cost of renting is also rising at a much faster rate in Canterbury than elsewhere.

The building increases and rent rises mean Canterbury's inflation rate is 50 per cent higher than the rest of the country.


Statistics New Zealand spokesman Chris Pike said price increases in the Canterbury housing sector caused inflation to hit 2.4 per cent in the region, well ahead of the 1.6 per cent inflation figure in 2013 nationwide.

The CPI, released yesterday, showed rentals rose 5.1 per cent in Canterbury from the same quarter the year before, the highest increase since 2006 and compared to 2.1 per cent rise nationwide.

The rise is faster in Christchurch, where rents have jumped by an average of about 10 per cent in the past year, bond figures collected by the Ministry of Business, Innovation and Employment (MBIE) show.

Members of the building industry are warning of further pressures on the cost of home building and rents.

Registered Master Builders chief executive Warwick Quinn put the soaring cost of building a house in Canterbury down to three factors.

They were extra requirements from the building code that followed the Canterbury earthquakes, an increase in labour costs, and construction companies hiking up their margins.

" Christchurch is growing at a much faster rate than the rest of the country, so we have a much higher pressure on labour and more costs associated with design.

"We also have better margins in construction with some construction companies putting up the prices."

Quinn said there would be much greater pressure on labour costs this year with commercial work and major government projects starting.

And as the rest of New Zealand's economy was picking up, workers might find enough work where they live.

"People won't go to Christchurch because they have enough work in their own local area. We're starting to see that now, particularly with the housing shortage in Auckland and a pick up in the level of activity in the rest of the country."

Pike said Statistics New Zealand took into account extra costs associated with new building requirements and factored those out when doing its comparison between costs in one year and the previous year.

So he put the higher new house prices increase down to higher labour costs, an inflation in material costs, and companies putting up their prices.

"It might be that some companies have run off their feet.

"They've got more work than they can take on so they put up their prices," Pike said.

Patricia Bowden from Harcourts Accommodation Centre said rents for short-term accommodation paid by insurance companies were a lot higher than the average rents.

Long-term rents had been more stable, with a slight increase following increases in insurance premiums, rates, labour costs for gardening and maintenance and repair work on the property.

Bowden said the stock of rental was falling as many rental property owners had had earthquake repair work done and were now selling to families who would live in the house rather than rent it.

"The stock has gone very low. There will be an extreme shortage, much worse than it is now. It's terrible.

"We just had a new intake of doctors and engineers coming in with their families, and now young tradespeople coming in from overseas for the rebuild.

"There's no accommodation for them."


Newly built house prices in the December 2013 quarter compared to the same quarter 2012

9.5% increase in Canterbury

3.9% increase nationwide

Rents in the December 2013 quarter compared to same quarter 2012

10% increase in Christchurch

5.1% increase in Canterbury

2.1% increase nationwide