Source: Cotality New Zealand
New Zealand home-building costs rose 1.7% in the September quarter, the fastest quarterly increase since late 2022, as higher material prices and increasing construction activity added to cost pressures.
The latest Cordell Construction Cost Index (CCCI) shows the quarterly increase accelerated from rises of between 0.9% and 1.1% during the previous three quarters.
Annual growth also increased, rising from 3.5% in the June quarter to 4.8% in the September quarter. This was the strongest annual increase since the June quarter of 2023 and above the long-term average of 4.0%.
Cotality NZ Chief Property Economist Kelvin Davidson said the result marked a clear shift from the more subdued conditions of the past two years.
“After a period of subdued changes, the cost to build a new house in New Zealand has started to rise more materially.”
“Builders have absorbed some cost increases, particularly where existing projects are covered by fixed-price contracts.
However, pricing for upcoming work is beginning to rise, suggesting households considering a new build may face a different cost environment in the months ahead.”
Why is a busier construction sector pushing costs up?
The construction sector has become busier in recent months, with the 12-month running total of new dwelling consents rising from fewer than 34,000 to more than 40,000.
While higher consent numbers do not necessarily translate directly into construction activity, they can reduce spare capacity across the sector and place additional pressure on costs.
Mr Davidson said higher fuel, freight and material costs were also contributing to the increase.
“Industry participants are reporting higher delivery and input costs associated with conflict in the Middle East, including fuel surcharges and increases in the price of some construction materials.
“Products experiencing cost increases include petroleum-based plumbing inputs, PVC, sealants, roof and ceramic tiles, reinforcing products and structural steel.”
Materials account for around 50% of the CCCI, with wages contributing approximately 40% and other expenses, including consenting and professional fees, comprising the remaining 10%. This means changes in material prices can have a significant influence on the overall index.
Are further cost increases on the horizon?
Mr Davidson said construction costs could continue to face upward pressure in the coming months.
“There is considerable uncertainty around the international outlook, and builders may need to pass on further cost increases where possible.”
“However, this may be challenging while the values of existing properties remain relatively flat and mortgage rates are rising. For some households, the changing cost equation could influence the choice between undertaking a new build and purchasing an existing property.”
“After a significant downturn that had begun to turn a corner, renewed global uncertainty is an unwelcome development for the construction industry. Further cost pressures may still flow through the pipeline.”