Source: Cotality
New Zealand’s residential construction costs rose 0.6% in the June 2025 quarter, according to Cotality’s latest Cordell Construction Cost Index (CCCI) – up from a 0.3% increase in Q1. Despite this uptick, cost growth remains below the long-term average of 1.0% per quarter.
Annual construction cost growth reached 2.7%, the fastest pace since Q3 2023. However, this modest acceleration largely reflects the removal of a sharp 1.1% drop in Q2 2024 from the annual comparison (i.e. a mathematical technicality), rather than a resurgence in price pressures.
Cotality Chief Property Economist Kelvin Davidson said that while the quarterly lift is worth noting, cost inflation across the residential building sector remains relatively subdued.
“Although the annual growth rate has nudged higher, it’s important to recognise this is more about base effects than any significant reacceleration,” Mr Davidson said.
“At 2.7%, annual cost growth is still well below the long-term average of 4.2%, and a far cry from the COVID-era peak of 10.4% in late 2022. Overall, construction cost pressures remain contained.”
Mr Davidson noted that reduced workloads across the sector over the past two to three years have created a degree of spare capacity, helping to ease cost pressures.
“New dwelling consents have dropped from more than 51,000 in the year to May 2022 to fewer than 34,000 now,” he said. “That decline has taken the heat off both wages – which account for around 40% of the CCCI – and material costs, which represent roughly 50%.”
The June quarter revealed a varied picture across individual product lines. Weatherboard cladding saw a 6% increase, while prices for decking timber and ceiling batts fell 1%.
“Cost movements are now being driven by specific supply and demand dynamics rather than broad-based inflation,” Mr Davidson said. “We’re seeing more nuanced and patchy shifts that reflect a normalising market.”
While the pace of growth has slowed, Mr Davidson warned that overall build costs remain elevated.
“Households can be more confident costs won’t run away during a project, but the total cost to build remains a hurdle. With ample existing stock on the market, builders may still face challenges attracting new projects in the short term.”
Looking ahead, Mr Davidson said several factors could support a gradual lift in construction activity.
“Population growth is still positive, mortgage rates have eased, and regulatory settings around loan-to-value and debt-to-income ratios continue to favour new-builds. As the broader economy recovers, the construction sector should follow.”
“Cost growth may well have bottomed out, with some renewed upward pressure possible in 2026. But a return to the double-digit growth rates of 2022 seems unlikely.”
