The cost of building in NZ
Building a house in an incredibly complex task. There is no simple answer to “how much will it cost?” because in New Zealand every house is different.
To get an ‘accurate ballpark’ figure you will need plans on hand – at the very least concept drawings and a list of products to be included. The more accurate you want, the more work and detail you need to put in, including a ‘schedule of products’ to be used.
One thing we can confidently say is that your project is likely to cost you more than you expect. Materials costs have risen up to 25% over each of the past five years and the shortage of skilled tradespeople means those costs have increased, too.
There are online tools available, but the single most accurate way to estimate a price is to take your design to a Quantity Surveyor and pay them to cost your build. Any tool (please find a list below) is only as accurate as the detail and time you put in.
As building activity increases, so too do material costs, and activity is at its highest ever levels right now.
Regulations change. Builders’ rates change as demand goes up.
Countering that are modern construction techniques which can speed up construction, thereby reducing costs.
Group home builders will generally be cheaper for one of their standard plans, but you can be quite restricted in the options you can choose. Also, there differing levels of quality and efficiency between brands and individual franchises – see our sister site, Builder Reviews here for more insight.
Architects are more expensive but the value of what you get back is immense and ongoing and usually worth it – an architectural draughtsman will usually give you what you ask for, an architect will give you a lot more., but you may well find that what you want is a lot more than what you initially expected to pay. Some architects can be difficult to work with.
Average House Build Costs
Beware when you get quotes that you’re comparing the same things – often cheaper quotes will leave out items you have to put in later, or under-quote on items your contractor expects you to change later – and remember – when you do changes you get charged for it!
Allow at least 10% for overruns, unforeseen costs or changes to the plan – you are likely to need it (and if you don’t need it then you can have a great housewarming party!).
If you can, when getting your job priced up be as specific about the materials and products to be used as possible. If at sketch design, you can attach a ‘List of Inclusions’ which will set out items to be used to a high level of detail, so the builders you get to quote can be quoting on the same things.
As your design progresses to detailed drawings and consent application stage the specifications will become more detailed, which means getting quotes from builders at this stage, or using a Quantity Surveyor to price your project, will give you a much more accurate price.
Points to remember:
- Find out the rough average square metre costs of building from your local builder, architect or quantity surveyor which will help you keep your project plans at a realistic level.
- As a very rough starting point, $2000 m2 is very cheap, $2000-3000 m2 is more usual and then anything from $4000 m2 and up is more consistent with architecturally-designed houses.
- If your wants are more than your means, there are things you can do to save money:
- work out what you can do yourself and what you will have to pay a tradesman to do. Unless you are good at DIY, it can be cheaper to get an expert. Some work must by law be done by a qualified tradesman – more on that here.
- Reduce the size of your project – instead of a 200 m2 house, perhaps you can live with a 180 m2 project. You may be able to save on engineering costs, too, if building smaller.
- Use cheaper materials – different cladding, window joinery, different flooring, fewer bathroom/kitchen tiles can all help bring down the cost. The flip side of this is that more expensive products are generally more durable and can also contribute to lower maintenance and energy costs.
- Discuss with your designer and builder to ‘engineer’ the costs down.
- Decide which features or changes are “must haves” and which can be dropped or deferred to stay within budget.
- Find out what your designer will charge. It is usually between six to 15 per cent of the total cost of the job, depending on its size and value and what services the designer provides.
- Go through our budget worksheet here to get a rough estimate of the likely total cost.
- Talk to a local real estate agent to see what houses like yours sell for – there’s no point spending more money than you will make from selling later (unless you plan to stay there for the long term).
- Talk to a Quantity Surveyor. They will be able to give you an accurate estimate of your project and help you with strategies to stay within your budget.
If you want to work through the costing exercise yourself, The Building Economist provides a subscription to get their costing booklet: go here… or some insight into how the costs come together, Beacon Pathway, a building research company, recently completed an exercise into the costs of building here…
If you’re looking at building or renovating, have a look at our Planning page here… It’s a good starting point to work through the individual items you need to cover off in order to start…
You’ll also need to see how you’re going to finance your build, too, so go here to learn about your options…
And before you get too far, make sure you learn about your rights by reading the Prescribed Checklist which sets out what your builder is supposed to do for you and what your responsibilities are, click here…
How to finance your new build
Whether you’re designing and building yourself, or buying off the plan, there’s nothing more exciting than a brand-new house.
Here’s what you need to know about financing your new build.
- New build home loan deposits
The good news is that mortgages for new builds are not subject to the Reserve Bank of New Zealand’s LVR rules.
This means that banks will be able to offer you a loan even if you don’t have the standard deposit of 20% (for homeowners) or 35% (for investors). You may be able to get a loan with a deposit of as little as 10% or even 5%.
You will, of course, still need to meet all the lender’s other lending criteria, including credit rating and your ability to service your repayments.
- Negotiating terms
When it comes to getting a good deal, new build home loans are no different to any other mortgage. You should still shop around, compare interest rates and fees, and negotiate terms and conditions.
With an experienced home loan broker working for you, you should still be able to take advantage of cash back offers and other incentives.
- The pitfalls of new builds
There are important traps to avoid when you’re dealing with builders. Be wary of paying a large upfront deposit before construction even starts, as your precious funds could end up being used to fund the builder’s other projects.
All too often, our newspapers are filled with horror stories of companies going into receivership, leaving buyers with half-built houses. You may be able to avoid this by negotiating a ‘turnkey’ purchase, where your deposit is held in escrow by the lawyers, and you only hand over the full purchase price once your house is completed.
- Financing your home during construction
It takes a long time to build a house. In the meantime, will you still be paying rent or a mortgage on your existing home? Often, banks turn down loan applications because the applicant doesn’t have enough income to pay interest on both loans during the construction period.
In some cases, an experienced broker may be able to negotiate with the lender to have the interest during the construction period added to your loan balance. This way, you’ll only have to service your existing rent or mortgage until your new home is ready.
- If you’re keeping your existing home
You can run into similar problems if you already own a property that you plan to rent out or sell later.
- If you’re relying on the rent from your existing home to help you pay your new mortgage, the bank may turn you down because you don’t yet have that income stream, and you can’t service the level of borrowing without it.
- If you’re planning to sell, banks may be reluctant to offer finance to bridge the gap between purchase and sale.
One way to solve this problem is to turn to an alternative funding source. However, this route may be more expensive – an experienced home loan broker will be able to run a cost-benefit analysis to help you decide if it’s a viable option for you.
- If you can’t get a turnkey contract
Sometimes, it simply isn’t possible to secure a turnkey contract. Even if you can, there is a risk – since a mortgage offer generally only lasts 60 – 90 days, and a building contract usually completes within six and nine months, you may have to reaffirm your financial position several times during construction.
What happens if your circumstances change and the bank decides to pull your funding during construction?
Although your mortgage broker can work with you to help make sure your application gets renewed, this is a definite risk. You can avoid it by crystallising the loan and drawing down funds to make progress payments, but as mentioned above you should be wary about handing over funds before your house is complete.
Be sure to take proper legal advice before entering into a contract, and make sure that your home loan broker is monitoring draw-downs and working with your bank to make sure you have enough funds in reserve to complete the build.