Builder on the tools with tool belt.

1) Slower Growth in Construction Costs

The construction industry is experiencing a slowdown in cost increases, with the rate of growth at its lowest point in seven years. In the fourth quarter of 2023, construction costs rose by 0.8%, slightly higher than the previous quarters but still below the long-term average.

2) Cooling Residential Building Sector

The residential building sector is cooling, contributing to the deceleration in construction costs. The industry is facing less pressure on overall capacity compared to the peak at the end of 2022, suggesting a more balanced market.

3) Material Supply Chain Dynamics

Material supply chains are easing, with stabilising timber prices and even modest falls for metal products. This could positively impact construction projects, as the availability and affordability of materials are crucial factors in cost management.

4) Industry Pressure Reduction

The industry is currently experiencing less pressure, and builders are not as over-stretched as they were at the end of 2022. This suggests a more manageable workload for construction professionals, potentially leading to improved project timelines and quality.

5) Potential Impact of Net Migration

The surge in net migration may help restrain the pace of wage growth in the construction sector. This could be a factor in controlling overall cost growth, as salaries constitute a significant portion of the total cost of a new build.

6) New Dwelling Consents and Future Supply

The decline in new dwelling consents suggests a softer phase of activity that could persist. However, demand incentives, such as lower deposit requirements for new-build properties, could encourage developers to continue bringing forward new projects. Increasing housing supply is seen as essential for controlling housing affordability in the long run.