New Zealand's House Building Costs Climb, Annual Growth Reaches 2.7%

House building costs in New Zealand have seen their most significant increase in nearly two years, according to the latest data from CoreLogic’s Cordell Construction Cost Index. The index recorded an annual growth rate of 2.7% for the three months ending in June, the highest since the third quarter of 2023. This uptick suggests the slowdown in cost growth may have reached its lowest point.

Chief property economist Kelvin Davidson attributed the rise partly to the reversal of a 1.1% decline recorded a year earlier, which may not necessarily indicate a return of strong price pressures. "Although the annual growth rate has nudged higher, it’s important to recognize this is more about base effects than any significant re-acceleration," he explained.

During the height of the pandemic, building costs surged by 10.4%, but Davidson noted that spare capacity in the construction sector has since increased due to a sharp decline in the number of new houses being built. This has eased pressure on wages, which account for roughly 40% of the index, and material costs, which make up about 50% of it.

The Cordell Construction Cost Index is based on the cost of building a standard single-storey, three-bedroom house with two bathrooms constructed from brick and tile. The report highlighted varied price movements among key materials, with weatherboard costs rising by 6%, while decking timber and ceiling insulation became slightly more affordable, decreasing by 1% each.

Davidson emphasized that current cost movements are now driven by specific supply and demand dynamics rather than widespread inflation. However, he acknowledged that building costs remain high, even with growth being more contained. "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," he said.

Looking ahead, Davidson expects a gradual recovery in the construction sector, driven by population growth, easing interest rates, and more favorable lending conditions for new builds. While cost growth may see some upward pressure in 2026, a return to the double-digit growth rates seen in 2022 seems unlikely.

As the construction industry continues to navigate post-pandemic challenges and evolving market conditions, the balance between cost stability and demand will remain a key focus for both builders and policymakers.