Source: Cotality
Construction costs recorded their largest quarterly increase in over a year during the three months to December, as early signs of a sector recovery begin to emerge.
The latest Cordell Construction Cost Index (CCCI) shows residential building costs increased by 0.9% in the three months to December. (ref. https://www.cotality.com/nz/resources/downloads/cordell-construction-cost-index-ccci )
While this represents the largest quarterly rise since Q3 2024 (1.1%), the figure remains slightly below the long-term average of 1.0%.
On the back of this quarterly lift, the annual pace of growth rose to 2.3% from 2.0% in the third quarter last year. That’s still well below the long-term average, which has been an annual growth rate of 4.1% since late 2012.
Cotality Chief Property Economist Kelvin Davidson said while construction costs continue to increase, the pace of growth remains contained.
“We are certainly not seeing the extreme inflation experienced in the post-COVID phase, when the CCCI annual growth rate peaked at more than 10% in late 2022. During that period, there were supply chain issues for key materials such as plasterboard and rising wages also drove up costs significantly*.
“However, although they’re not rising to any huge degree at present, costs haven’t seen significant falls either. Following the previous growth phase, the overall level of cost to build a new dwelling remains elevated even though the growth rate has cooled,” he said.
A turnaround in dwelling approvals
Recently, the 12-month rolling total for the number of new dwelling consents has started to rise again, reaching more than 35,500 in October.
Mr Davidson said this marks a turnaround following the period of stagnation (albeit at a high level) observed throughout late 2024 and the first half of 2025.
“After peaking at more than 51,000 in the 12 months to May 2022, the number of new dwellings consented dropped to a low point between 33,500 and 34,000. We are now seeing a recovery that aligns with anecdotal evidence that builders are becoming busier again.
“This shift reflects lower mortgage rates and increased ability for households to finance projects or buy off-the-plan. The loan-to-value ratio and debt-to-income ratio rules both offer exemptions for new builds, providing a further tailwind for the sector,” he noted.
Construction sector positioned for recovery in 2026
Looking ahead, the construction sector is set to expand again in 2026, and Mr Davidson said the previous downturn has allowed building costs to flatten after a period of strong increases.
“The latest CCCI figures remain relatively controlled, although as the industry starts to recover more clearly in 2026, construction cost growth could pick up again. However, a spike similar to the post-COVID phase remains unlikely,” he concluded.
* The CCCI is comprised of around 50% materials, 40% wages, and 10% for other charges such as professional fees.
MIL OSI
