BUILDING COSTS BREAKDOWN

Fletcher-commissioned Deloitte report focuses on cost of new residential housing supply, with focus on building materials

Accusations that building material costs in New Zealand are unreasonably high, particularly compared to Australia, surface regularly. Last year, the issue was viewed as such a concern by some that then-Housing Minister Phil Twyford promised an investigation, although no such investigation has occurred yet.

Looking to shed some light on the situation, Fletcher Building commissioned a Deloitte report to investigate the cost of the new residential housing supply.

One of many drivers

While there’s no question materials are a key contributor to the overall cost of residential housing development, the study found that they are by no means the only cost-driver.

Land and costs related to land, such as civil works and infrastructure, are equally or more important. Other significant costs include labour, GST and other government levies and charges, professional fees, and other costs relating to the developer, including the cost of holding land and preliminary costs.

The report addresses three key questions:

1) What is the overall contribution of building materials to the cost of new residential housing development across a range of home types in Australia and New Zealand?

2) What explains cost differences in residential housing development between New Zealand and Australia?

3) To what extent does market structure drive the cost of building materials in New Zealand?

Over the next few months, Under Construction will relay key findings from the report.

Building materials contribution

Building materials are the second-largest cost component of residential housing development in New Zealand, after land and infrastructure costs. The cost of building materials in New Zealand accounts for between 16% and 24% of the cost of residential housing development costs, depending on the type of building and location.

Deloitte’s report shows that if a two-storey house in a greenfield residential development in Auckland costs a developer $1.16m, land and civil works and infrastructure account for just over 30% of the cost, and construction materials account for about 18%.

In Wellington, materials are the leading cost – the same type of house would cost a developer $845,740, with land and civil works and infrastructure accounting for just over 20% of the cost, and construction materials accounting for 23.5%.

Christchurch is similar to Wellington, with a house that costs a developer $875,268 consisting of material costs of $198,836 (around 22%).

On a like-for-like basis, that same house in the Kellyville suburb of Sydney, which is 36km North-West of the CBD, would cost $1.51m, with land and civil works infrastructure accounting for over 35%, and materials costing $199,317 (13.2%).

In Melbourne’s Wollert suburb, which is 26km north of the CBD, the house would cost $854,109, with land and civil works infrastructure accounting for over 25%, and materials contributing $186,208 (21.8%).

Industry response

According to Fletcher chief executive Ross Taylor, the Deloitte report was a response to the “lack of fact-based research on what is driving costs in New Zealand.

“We believe it provides valuable information to help move the discussion forward and work on solutions to address housing affordability,” said Taylor.

Building Industry Federation of New Zealand chief executive Julien Leys is pleased that the report was commissioned.

“The Deloitte report unequivocally shows 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% to 4% each of the total cost of a house,” said Leys.

“This is pleasing to see, because it validates what many in the industry have been saying for some time.”