Identification and analysis of building consent, inspection and approval costs: Building costs

On this page

• Construction cost estimating tools
• Actual construction costs
• Additional industry data
• Industry response regarding new and increased costs arising from changes to building control
• Cost increases arising from other legislative changes
• Other notable cost increases

To better determine how these building and construction costs have changed and how consent fees have changed relative to them, representatives from a number of organisations within the building industry, including several major national building and construction firms, were interviewed. (Refer to Appendix 3 for the list of organisations.) Some were able to provide detailed analyses of their costs over the period 2001 to 2007 based on a standard design.

Maltby & Partners Ltd (Maltbys) and Rawlinsons also prepare annual analyses of building costs based on a range of standard residential and non residential buildings.

Construction cost estimating tools

The Department provides indicative construction costs (and a related index), developed by Maltbys, to guide building officials in assessing building consent fees. These figures are presented on a square metre basis for five different building types.

• Small house (145 m²)
• Large house (202 m²)
• Light commercial building (414 m²)
• Retirement home (394 m²)
• Commercial (bulk retail) building (896 m²)

The unit construction costs for these building types are built up from the commercial prices of materials and labour current for each year along with allowances for contractors’ overheads and margins (assuming one contractor is engaged to provide the entire construction). The costs include GST but do not take into account any regulatory or compliance costs. Pricing is provided for six separate regions covering the whole of New Zealand. Residential housing costs are calculated for speculative houses and do not represent the economies of scale gained by franchise building of similar homes, or the additional costs of one-off homes with a significant amount of architectural input.

Maltbys assesses group houses as 21% cheaper on average and architecturally designed houses as 20% more expensive.

Tables 6-9 set out the changes in building costs for each type of house between 2001 and 2007.

Table 6: Maltbys estimates for the small house built in Auckland

Year	Index	Unit cost/m2	Total building cost
January 2001	1000	$1,058	$153,410
January 2002	1021	$1,080	$156,600
January 2003	1074	$1,136	$164,720
January 2004	1191	$1,121	$182,845
January 2005	1284	$1,359	$197,055
January 2006	1411	$1,493	$216,485
January 2007	1590	$1,683	$244,035

Table 7: Maltbys estimates for the small house built in Christchurch

Year	Index	Unit cost/m2	Total building cost
January 2001	1000	$1,026	$148,754
January 2002	1049	$1,076	$156,020
January 2003	1085	$1,113	$161,385
January 2004	1208	$1,239	$179,655
January 2005	1310	$1,344	$194,880
January 2006	1446	$1,483	$215,035
January 2007	1601	$1,642	$238,090

Table 8: Maltbys estimates for the large house built in Auckland

Year	Index	Unit cost/m2	Total building cost
January 2001	1000	$966	$195,036
January 2002	1022	$987	$199,374
January 2003	1077	$1,040	$210,080
January 2004	1186	$1,145	$231,290
January 2005	1247	$1,204	$243,208
January 2006	1352	$1,305	$263,610
January 2007	1472	$1,421	$287,042

Table 9: Maltbys estimates for the large house built in Christchurch

Year	Index	Unit cost/m2	Total building cost
January 2001	1000	$935	$188,905
January 2002	1041	$973	$196,546
January 2003	1096	$1,024	$206,848
January 2004	1208	$1,130	$228,260
January 2005	1269	$1,187	$239,774
January 2006	1390	$1,300	$262,600
January 2007	1483	$1,387	$280,174

These estimates indicate that the cost of building in Auckland over the period January 2001 to January 2007 increased by 59.0% for a small house, and 47.2% for a large house. In Christchurch the increases were 60.1% for a small house, and 48.3% for a large house. These increases were in the middle of the range for construction in all regions over the period.

Rawlinsons also produce unit costs for a wide range of building types and building components, including a single-level residential house 90-130 m² similar to the ‘small house’ surveyed by Maltbys (although the Maltbys house has an internal garage). The unit costs proposed for these houses built in Auckland in 2007 are $1,750/m² for Maltbys and $1,200-$1,400/m2 for Rawlinsons. The basis of a single speculative house is the same, but the Maltbys estimate includes GST and higher specification including the internal garage. An independent estimate by a Hawke’s Bay valuation firm found that, once these differences (which amount to a difference of about 20% in total costs) are adjusted for, the Maltbys estimate reduces to $1,400/m² and aligns with the top of the Rawlinsons estimated range.

These unit costs are therefore sufficiently similar that either could be used with confidence. This report uses the Maltby estimates.

Actual construction costs

A range of stakeholders from the building sector were interviewed for their perspective on cost increases and the effects of the Act.

This discussion revealed that there is very limited readily available hard data on detailed cost increases in the building industry over the period 2001-2007.

However, one company originally established in Christchurch but now building homes nationally has built a comprehensive dataset. This data provides further verification of total building cost increases, but also provides a breakdown of the increases by cost category. Building industry groups consider this data to be sufficiently representative to be used to support industry submissions on public policy.

The data consists of year-by-year as-built costs from 2002-2007 for a single house design in Christchurch that has been on the market throughout the period. It is a three bedroom, two bathroom 191 m² home with two living areas and an internal access garage. Costs are exclusive of GST.

Table 10: Total cost breakdown 2002-2007

	2002	2003	2004	2005	2006	2007
Project management and overhead2	$23,719 (15.9%)	$27,079 (16.6%)	$36,978 (20.1%)	$34,754 (18.5%)	$32,008 (16.7%)	$44,165 (20.5%)
Infrastructure levies	$1,000 (0.7%)	$1,500 (0.9%)	$2,000 (1.1%)	$5,000 (2.7%)	$7,500 (3.9%)	$10,000 (4.6%)
Total fees (refer Table 11)	$1,510 (1.0%)	$1,565 (1.0%)	$1,599 (0.9%)	$2,002 (1.1%)	$2,005 (1.0%)	$2,393 (1.1%)
Labour	$20,117 (13.5%)	$24,409 (15.0%)	$27,830 (15.1%)	$27,423 (14.6%)	$27,337 (14.3%)	$30,293 (14.0%)
Materials	$102,703 (68.9%)	$108,425 (66.5%)	$115,812 (62.9%)	$118,744 (63.2%)	$122,827 (64.1%)	$128,840 (59.7%)
Total	$149,049	$162,978	$184,219	$187,923	$191,677	$215,691
Total without fees and charges	$146,539	$159,913	$180,620	$180,921	$182,172	$203,298

The total fees noted here include building consent fees, inspections, Building and BRANZ Levies, vehicle crossing, water connection and PIM charges. This group of consent costs goes beyond those that apply for building consent, inspection and approval activities, as set out in Table 11 below.

Table 11: Total fees and levies breakdown 2002-2007

	2002	2003	2004	2005	2006	2007
Building consent-related fees	$856	$866	$866	$992	$1,046	$1,262
Vehicle crossing inspection fee	$60	$60	$60	$53	$53	$53
Water connection fee	$345	$370	$370	$378	$378	$444
BRANZ Levy	$151	$163	$184	$195	$196	$213
Building Levy	$98	$106	$117	$384	$386	$420
Total Fees	$1,510	$1,565	$1,599	$2,002	$2,005	$2,393

The following table and charts show the cost increase over time, how different cost categories have contributed to cost increase and how their overall proportion of the total cost has changed.

Table 12: Total cost increase from 2002-2007

	Total cost increase	% of total cost increase
Project management and overhead	$20,446	30.7%
Consent fees	$406	0.6%
Infrastructure levies	$9,000	13.5%
Other council fees	$93	0.1%
BRANZ and Building Levies	$384	0.6%
Labour	$10,176	15.3%
Materials	$26,137	39.2%
Total	$66,642	100.0%

Chart 10 Total building cost breakdown 2002

Chart 11 Total building cost breakdown 2007

 

The building firm has separated the cost of specification upgrades from the total cost of building. They have also provided an assessment of direct and indirect costs perceived to have arisen from the building regulatory regime, which it has identified as ‘compliance costs’. The key areas of compliance cost increases were noted as:

• Building Code changes, particularly E2 External Moisture
• increases in building consent fees
• increases in Building Levies
• blueprints and royalties associated with the requirement for more detailed plans
• new waste levies compliance
• new OSH compliance.

Of these costs, it should be noted that waste levies and OSH compliance costs do not arise from building legislation.

Additional industry data

Another data set was supplied by a national residential building firm that compared the total cost of building comparably sized and specified houses in Auckland and Manukau Cities to several council fees and charges over time.

Table 13: Comparison of total residential building costs with fees and charges in Auckland and Manukau cities between 2001 and 2007 (data supplied by a national building firm)

Year	Job address	Building consent fees	Water connection fee	Development contribution	Build cost	Building consent as % of total cost
Manukau City
2001	Manurewa	$1,445	$320	-	$128,371	1.1%
2003	Wattle Cove	$1,776	$387	-	$157,908	1.1%
2005	Wattle Cove	$1,968	$387	-	$173,238	1.1%
2007	Wattle Cove	$2,610	$1,992	$5,600	$194,509	1.3%
Auckland City
2001	Glendowie	$1,895	$515	-	$176,833	1.1%
2003	Glendowie	$2,349	$515	-	$212,183	1.1%
2005	Mt Wellington	$2,292	$2,405	-	$225,827	1.0%
2007	St Johns	$3,906	$2,405	$2,678	$256,484	1.5%

Despite the fees quantum increasing around 100% over the period, building consent fees in these jurisdictions have increased only 0.2-0.4% as a percentage of total building costs over the period. Building consent fees remain only up to 1.5% of the total building cost. This assessment also identifies a significant increase in water connection fees, greater than the increase in building consent fees, and the introduction of development contributions fees in these jurisdictions during the period.

Industry response regarding new and increased costs arising from changes to building control

Stakeholders were asked to consider:

• changes to total building costs over the period 2001-2007
• direct and indirect costs arising from changes in the Building Act 2004
• other pressures on building costs during the period.

Cost increases related to building control

Interviewees were unanimous that building costs had increased significantly during the period, and considered that the Building Act 2004 was responsible for some of the cost increase. There was an abundance of anecdotal evidence that linked cost increases to implementation of the Act.

Stakeholders agreed with the range of compliance cost increases noted by the building company above and also identified some indirect costs related to implementation of the Act.

The building industry’s major concern about councils’ implementation of the Act is delays to building projects due to extended consent and approval timeframes. Holding costs arise due to extensions of the 20-day consent processing period, greater numbers of inspections required, and greater notice period required for inspections of time-sensitive construction steps, such as pouring concrete. Interviewees estimate the time taken from original consent application to code compliance certification averaged 2-3 months in 2001/02 but by 2006/07 had increased to 6-9 months in some jurisdictions.

Extending building timeframes can result in a number of unexpected costs. Delays in construction cause delays in progress payments, which can lead to late payment penalties and interest incurred on debt. Labour costs may be due to increased inspections and longer building timeframes causing poor use of subcontractor time. Delays can also expose developers to the risk of contract disputes due to late delivery. This is an increasingly important risk as the market slows and buyers may be looking for opportunities to not complete the contract. Respondents also noted delays where councils had information requests for clarification of consent documents very late in the 20-day period. Developers note that late requests for further information occur more regularly where there is heavy demand on building control services (eg, when there are a number of large projects seeking approval in the jurisdiction).

The delays mentioned above arose through a combination of circumstances, including strong demand for new building work. Figures from Statistics New Zealand, set out in Chart 11 opposite show a peak in building consent numbers in 2003/04, with a sharp drop in 2004/05 followed by a steady increase through to 2006/07. This increase coincides with the introduction of new requirements of the Building Act 2004, including accreditation of building consent authorities, which put added demands on the resources of council building control departments. The combination of these factors exposed capacity and capability issues in a number of council building control departments, which contributed to the delays experienced by the industry. 

The Department’s own recent survey of consent statistics reveals a higher total number of consents issued by each authority than identified by official Statistics New Zealand data (Statistics New Zealand figures identify only those consents over $5,000 value).

The industry also noted a significant compliance burden and additional costs arising from councils’ increasing information requirements to be ‘satisfied on reasonable grounds’ that plans comply with the Building Code. Greater stringency is driven by local authorities’ own policies, which are based largely on limiting council liability for failure of approved building projects. Industry identifies council requirements for more detailed plans as driving up drafting costs by as much as $2,000 per standard house (ie, houses of similar design to the Maltbys large house and the comparable industry example).

More stringent requirements for approving alternative solutions and using producer statements have led to additional design work for some building and house manufacturing companies. Additional peer review requirements for large scale, complex projects can cost up to $20,000, which is recovered from the applicant (although this is a small percentage of the total project cost on a high-rise residential or office development).

While the industry has noted that they will incur costs due to registration and that these costs will be passed on, the impact on total building costs is not likely to be significant. It is likely that registration will be an overhead component of contractor and subcontractor time that can be spread over a number of building projects.

Cost increases arising from other legislative changes

Other cost increases arising from changes to the compliance/legislative environment identified by the industry as significant include the following.

• Financial contributions and development contributions are the primary concern of developers. Development contributions vary widely across councils as they are linked to capital expenditure required to meet new demand from growth. Interviewees were aware of development contributions fees ranging from approximately $2,500 to $35,000 per household equivalent unit (HEU). The House Prices Unit report on housing affordability has estimated these indicatively at $25,000 per HEU. There is further discussion of development contributions fees in section 6.
• Notified resource consent processes are a significant cause of delays, particularly for large-scale developers.
• Sharp increases in water and sewer connection charges have been noted in some jurisdictions. There is further discussion of these and other council fees in section 6.
• Occupational Safety and Health requirements for increased site safety and temporary on-site amenities. Industry members estimate these changes can impose extra project costs of up to $5,000.

Industry members acknowledged that these compliance cost drivers, as well as other costs imposed through council fees and charges, other legislative change and changes to the Building Code, must be separated from costs related solely to the Building Act 2004 in order to robustly assess the impact of the Act.

Changes to the Building Code were mentioned as a source of new costs by most industry members, particularly those that were seen to be linked to leaky home issues (eg, Code requirements for treated timber, wall cavities and flashings). Industry estimates of the cost impact of these Code changes are in the range of $1,000-$2,000 per house. Interviewees were much more concerned with process timing and requirements and resulting delays or downtime than with the quantum of, or increases to, building consent fees.

Other notable cost increases

Interviewees’ assessment of other cost increases was consistent with the data presented above. Price increases to building materials make up most of the total building cost and most of the total building cost increase. The increase is lead by timber (due to lower harvesting volumes in New Zealand), structural steel, copper cabling and aluminium roofing and joinery (due to global commodity price increases).

Consumers are also demanding larger homes and increased building quality, including built-in garaging and higher-quality fixtures and finishes. Also, increasing energy costs have resulted in higher specification building in an attempt to reduce heating, lighting and other in-use costs.

Labour cost has increased as demand has increased and through increased subcontractor margins. Strong demand for new residential property in particular has stretched labour supply. Skilled labour shortages in the construction trade, noted by interviewees and reinforced by data from Quarterly Surveys of Business Opinion, have exacerbated cost increases.  

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 2 Project management and overhead includes design costs and margin.