PROPERTY NOISE | ANALYSIS
New Zealand needs homes people can afford. But the cost of producing those homes is rising again—while a weak property market makes it harder for builders and developers to recover their costs.
PHOTO: New Zealand has a serious housing problem when building becomes more expensive without households becoming better able to pay. FILE
The latest Cotality Cordell Construction Cost Index (CCCI), according to the supplied press release, shows home-building costs increased 1.7% in the September quarter of 2026—the fastest quarterly rise since late 2022.
Annual construction cost growth reached 4.8%, up from 3.5% in the June quarter and above the index’s long-term annual average of approximately 4%.
That creates an uncomfortable squeeze.
Buyers want affordable homes. Builders need viable contracts. Developers need projects that stack up. Rising construction costs can make all three objectives harder to achieve at once.
WHAT THE NZ BUILDING COST FIGURES SHOW
| Measure | Latest result |
|---|---|
| September-quarter construction cost increase | 1.7% |
| Annual construction cost growth | 4.8% |
| Previous quarter’s annual growth | 3.5% |
| Long-term average annual growth | Approximately 4.0% |
Cotality NZ Chief Property Economist Kelvin Davidson says the subdued cost environment of the past two years is changing.
Some builders have absorbed increases on existing fixed-price projects. However, the release indicates that pricing for upcoming work is beginning to rise.
For households considering a new build, that means an earlier estimate may no longer describe the cost of starting today.
A $600,000 BUILD: WHAT DOES THE INCREASE LOOK LIKE?
Consider a hypothetical household with a $600,000 construction budget, excluding land.
If its construction costs increased in line with the latest index, the arithmetic would look like this:
| Illustrative scenario | Increase | Revised construction cost |
|---|---|---|
| Original construction budget | — | $600,000 |
| Applying the 1.7% quarterly increase | $10,200 | $610,200 |
| Applying the 4.8% annual increase | $28,800 | $628,800 |
These are separate comparisons, not increases to add together. They illustrate the index movement—not a prediction or an actual building quote.
Individual projects will vary according to design, location, materials, site conditions, specifications and contract terms.
Nevertheless, the example shows why apparently modest percentages matter. An additional $28,800 could require more savings, additional borrowing or changes to the design.
It also excludes any separate changes in land prices, financing costs or other project expenses.
THE BIG PROBLEM: BUILDING COSTS AND HOUSE PRICES CAN MOVE IN DIFFERENT DIRECTIONS
A new home does not automatically become worth more because it costs more to build.
Buyers compare it with the alternatives available in the local market. Their budgets depend on income, savings and access to finance—not simply the developer’s costs.
Property Noise recently examined New Zealand house values falling for a sixth consecutive month. That report highlights the weak market into which new homes must compete. Cotality NZ – Property Noise
When construction costs rise but achievable selling prices remain flat, the gap has to be absorbed somewhere.
A builder may accept a smaller margin. A developer may seek a cheaper site, redesign the project or postpone it. A household may choose a smaller home—or buy an existing property instead.
That is how rising costs can undermine the delivery of housing, even when there is demand for more affordable homes.
AN EXAMPLE OF HOW A DEVELOPMENT CAN STOP STACKING UP
Imagine a small development with these hypothetical figures:
| Project item | Amount |
|---|---|
| Expected total sales revenue | $5,000,000 |
| Total project costs | $4,500,000 |
| Project surplus before tax | $500,000 |
| Construction component within those costs | $3,000,000 |
If that construction component increased by 4.8%, it would add $144,000.
With selling prices unchanged, the project surplus would fall from $500,000 to $356,000—a reduction of 28.8%.
This is a simplified illustration, not evidence that every developer is experiencing that outcome. It assumes all other costs and revenues remain unchanged.
But it demonstrates an important point: a relatively small increase in one large cost category can remove a substantial share of a project’s expected return.
For a project already operating with a thin margin, that may affect whether it proceeds.
WHY MORE BUILDING ACTIVITY CAN PUSH COSTS HIGHER
The supplied release says the rolling annual number of new dwelling consents has risen from fewer than 34,000 to more than 40,000.
That suggests a larger pipeline of potential work. It does not mean all those homes are under construction—or that they will all be completed.
Still, a busier pipeline can increase competition for trades, materials and delivery capacity.
New Zealand needs additional homes to improve housing choice. Yet if activity expands faster than the industry’s capacity to respond, some of the benefit can be offset by higher production costs.
The policy challenge is therefore broader than encouraging more consents. It includes enabling the industry to deliver homes efficiently and at prices households can support.
FUEL, FREIGHT AND MATERIALS ARE ADDING PRESSURE
Davidson attributes part of the increase to higher fuel, freight and material costs, including pressures associated with conflict in the Middle East.
The release identifies increases affecting products such as:
- Petroleum-based plumbing inputs and PVC.
- Sealants.
- Roof and ceramic tiles.
- Reinforcing products and structural steel.
Its approximate index weightings are 50% materials, 40% wages and 10% other expenses.
These are index weightings, rather than a universal breakdown of every building project. But they help explain why material-price changes can significantly affect the overall measure.
FIXED-PRICE CONTRACTS DO NOT MAKE COST PRESSURES DISAPPEAR
An existing fixed-price contract may provide the customer with protection against some increases, depending on its terms.
It does not prevent a builder’s suppliers or subcontractors from becoming more expensive.
Where the builder cannot recover those increases, profitability may suffer. Where the contract permits adjustments, some costs may reach the customer.
Upcoming projects present a different situation: builders can reflect current costs when preparing new quotes.
That means a household comparing today’s quote with a neighbour’s older contract may be comparing two different cost environments.
CHEAPER EXISTING HOMES DO NOT AUTOMATICALLY SOLVE THE SUPPLY PROBLEM
For some buyers, purchasing an existing home may become more attractive than building.
Greater choice can help those buyers negotiate, as Property Noise explored in NZ housing stock hits a 12-year high—buyers now hold the cards.
However, the implications for future supply deserve attention.
If the cost of producing a new home exceeds what buyers will pay, some projects may be delayed. That does not establish that a shortage is inevitable: outcomes will depend on local demand, existing stock, population changes and the types of homes being built.
It does mean that a weak resale market and rising construction costs can combine to discourage new development.
THE QUESTION NEW ZEALAND NEEDS TO ANSWER
The country cannot judge housing progress solely by rising property values or higher consent numbers.
It needs to ask whether households can afford suitable homes—and whether builders can deliver those homes sustainably.
That requires scrutiny of material competition, productivity, infrastructure, consenting processes and the financial pressures affecting construction.
The latest release does not prove that every project is in trouble. It does reveal a significant risk: New Zealand could become more expensive to build in without becoming easier to live in.
For a household trying to secure its first home, that is the affordability problem that matters.
Source: Cotality press release supplied to Property Noise. Worked examples are Property Noise calculations using hypothetical budgets.