New Zealanders planning a new build could face higher expenses in the months ahead, following the sharpest quarterly increase in residential construction costs in almost four years.
According to Cotality’s latest Cordell Construction Cost Index, homebuilding costs rose 1.7% in the September quarter, compared with increases of between 0.9% and 1.1% in each of the previous three quarters.
Annual construction cost growth also accelerated, rising from 3.5% in June to 4.8% in September. That was the strongest annual increase since June 2023 and exceeded the long-term average of 4.0%.
Cotality Chief Property Economist Kelvin Davidson said the figures marked a significant change from the relatively subdued cost increases of the past two years.
He said that while some builders had absorbed higher costs, particularly on projects covered by existing fixed-price contracts, those increases were beginning to flow through to quotes for future projects.
What’s driving the increase?
The building industry has become busier in recent months, reducing spare capacity and increasing pressure on prices.
Meanwhile, higher fuel, freight and material costs are adding to builders’ expenses, partly due to the ongoing conflict in the Middle East.
Products experiencing price increases include plumbing materials, PVC, sealants, roof tiles, ceramic tiles and structural steel.
Materials account for approximately 50% of the construction cost index, while wages represent 40% and other expenses, including consenting and professional fees, make up the remaining 10%.
That means rising material prices can have a substantial effect on overall building costs.
What does this mean for prospective homeowners?
Mr Davidson warned that further cost increases could be on the way, although builders may find it difficult to pass them on while existing property prices remain relatively flat and mortgage rates are rising.
With the cost of building increasing while established property values remain relatively flat, some prospective homeowners may reconsider whether to build a new home or buy an existing one.
For those proceeding with a new build, the changing cost environment makes it particularly important to understand the overall project budget before committing.
With building expenses rising, getting your finances organised early could help you avoid surprises later. If a new build is on your agenda, get in touch to discuss construction finance and how it works.
