The price of building

When will increases in building costs and skilled labour shortages have an impact on the prices of new homes? VICKI HOLDER reports.

Enjoy the honeymoon period while it's here, says an Auckland property developer who predicts new house prices, especially in top areas, will skyrocket over the next few years.

Peter Turner of KGB Construction, responsible for some of Remuera's top quality, most expensive apartment complexes, says with the shortage of skilled labour and product price increases, building costs have gone up by about 30 percent in the last 12 months. But it's not being reflected in values ... yet. He is certain a massive correction will soon take place, reflecting what is currently happening in the building industry.

"China has been growing at such a rapid pace, he says. "The Chinese have been taking construction steel from all around the world. And we're not getting enough skilled workers because they haven't got the right training anymore. The lack of skills in the building fraternity is very apparent. This basic supply and demand situation has doubled the cost of building."

Whereas people were paying about $2000 to $3000 per square metre to build an above-average home, they are now paying about $3000 to $4000 per square metre, he says. And it's even tougher for developers who have to add their margins on top of that.

Yet market values have gone backwards as buyers stall. Turner says the media have told people prices are going down so they think they're better off waiting. But they're in for a shock soon, he says.

Real estate consultant Paul Barnao, of Barfoot & Thompson, warns once the costs of building quality homes are reflected in prices, buyers can expect huge increases and this should happen over the next few years. "The replacement costs of existing stock will be completely out of kilter."

Developers may have to adjust their margins to reflect market prices. But they can't do anything about the fixed costs. "Building costs will never stop," says Turner. "People work to a formula to find out values. With the softening of the market, it has made new buildings very hard to compete."

So, he says: "Now is a good time to buy. A lot of people are prepared to do a deal. I'm not heavily into discounting, but people have become very cautious.

"The other thing is that in the last 12 months there has been a huge emphasis on quality. Joe Average doesn't realise just how much it costs to create quality. When it comes to sales, we just have to meet the market. I've been lucky, nearly everything in my latest development, Kingsridge on Remuera Rd, has sold."

Turner has a new development similar to Kingsridge just along the road. "It's more exclusive with each apartment on a different level. It has a similar construction and I can't believe how high the quotes are coming in at. But we've simply got to set a retail price and work to it. Without sales, you can't move.

"There's no longer the frenzy any more. The phones aren't working as hard as they were. A lot of people are sitting back and saying, 'we'll just wait a while'. Many of the sales that are happening right now are conditional. People are a bit jittery.

"All I can say is, if you're holding back to see where it's going, if you're going to sit and wait for the market to go down, it's false economy. The labour market and the economy aren't going to get any better. People are expecting prices to come down. But they can't."