The rush to satisfy the long-term pent-up demand for housing is seeing construction costs blow out for all new builds, accentuated by a natural focus on top-end, high-spec opportunities

New Zealanders have stopped buying bigger new houses.

In fact, based on housing consent data, houses built in 2016 are 5% smaller than those built in 2006.

However they are 40% larger than those built 25 years ago.

House sizes grew until 2006 – when we called them McMansions – and then the bloat stopped. However it has not shrunk back much since then.

Nationally, on average, our new houses are now 218 square metres(about 2,350 square feet).

In Auckland, they are even larger at 233 square metres (about 2,510 square feet)) up about 7% compared to the national average

Perhaps a reason the size has stopped growing is that the cost of construction has not.

Twenty five years ago, the cost to build was $687 per square metre. By 2006, that had risen to $1,096 per square metre. Today, that national average level has risen to almost $1,800 per square metre.

Using the Reserve Bank inflation calculator, that shows those numbers in inflation-adjusted terms, house construction costs have risen 65% per square metre over the past 25 years in real terms, and are up 34%/per square metre in real terms in the past 10 years.

The data for Auckland are similar. In real terms the rises for the Queen City are +56%/square metre  in 25 years and +33%/square metre in the past 10 years.

The data for Christchurch is interesting too because it straddles the earthquake recovery period.

For the Garden City, the rises in real terms are +80%l/square metre real in 25 years, +44%/square metre in the past 10 years.

The sudden demand has pushed average construction costs in Christchurch to $1,884 per square metre, and they are now higher than the Auckland 2016 average of $1,816 per square metre.

Most of the focus around the current housing bubble is on the dramatic rises in land prices. But new supply may also be being constrained somewhat by these eye-watering jumps in construction costs.

And the increases are not just limited to houses.

The costs for building apartments is even more eye-watering and actually more expensive on a per square metre basis than for houses, even if each unit is smaller.

The average apartment size rose from 104 square metres  in 1991 to 108 square metres in 2006 to 113 square metres today.

But over the same time, the average cost to build benchmarks have risen from 763/square metre in 1991 to $1,590/square metre in 2006 to $2,857/square metre today.

In inflation-adjusted terms, that is a real increase of 138% over 25 years, and +47% in the past 10 years.

It gets ‘worse’ in Auckland.

Today it is costing a remarkable $3,082/square metre to build an apartment unit, one that averages just 123 square metres.

In inflation-adjusted terms that is 136% higher than 25 years ago, but more worrying it is up 118% in real terms in just the past 10 years.

Higher spec apartments will be a big part of this shift.

Developers are facing rising demand from boomers who are downsizing and they want high-spec alternatives.

Given there are growing construction capacity constraints, why would any developer want to build lower-priced entry level units for buyers desperate for accommodation.

That constraint will be equally true for building ‘normal’ multi-unit rental accommodation.

Renters may be being sidelined into existing-builds that lose their attractiveness for home-buyers. Given the level of demand, the supply responses will not be focusing anywhere but the top end until that demand is satisfied.

If you have read this far, you should know that all the above data is based on building consent figures.

As anyone who has filed a building consent knows, the actual project rarely comes in at those cost levels – its always an experience where you end up spending considerably more.

So the real figures will probably be worse than those outlined above.