Construction costs flatten as housing sentiment lifts on LVR easing

New Zealand’s residential construction costs rose only marginally in the September quarter, signalling a sustained slowdown in cost growth as the housing market stabilises and lending conditions ease ahead of 2026.

The Cordell Construction Cost Index (CCCI) showed the cost to build a standard single-storey brick and tile home rose 0.4% in the three months to September, down from 0.6% in Q2 and well below the long-term quarterly average of 1%.

Annual growth slowed to 2%, compared to 2.7% previously and far below the long-term average of 4.1%.

Cotality NZ chief property economist Kelvin Davidson (pictured) said the moderation reflected a market that had largely moved past the extreme post-COVID cost pressures of 2021–22.

“Materials are better supplied, wage growth has steadied, and we’re seeing more predictability in project pricing,” Davidson said in a media release.

“Construction costs remain high in dollar terms, but the pace of change is much milder. For builders and homeowners alike, that creates greater confidence in quoting, budgeting, and delivery.”

Material costs mixed as sector normalises

The CCCI attributes about half of total costs to materials, 40% to wages, and 10% to professional and site costs.

Price movements were mixed in Q3 — plumbing costs rose 7%, gas products climbed 2%, while bathroom fittings dropped 6% and roof tiles and kitchen joinery stayed flat.

“These mixed results show a degree of normalisation and a sector that has found a more sustainable footing,” Davidson said.

“Builders have more flexibility to manage costs through specification choices, and clients can have more certainty that projects will stay close to budget.”

Pipeline holds steady as demand rebuilds

After peaking above 51,000 dwelling consents in the year to May 2022, annual consents have eased to around 33,500–34,000, still well above historical lows.

“The pipeline has thinned, but the underlying level of activity remains consistent rather than stagnant,” Davidson said.

“Some spare capacity has returned to the system. If confidence and access to finance continue to improve, we could see a gradual lift in project starts through 2026.”

Confidence is already improving in the housing market, with REINZ data showing September sales up 3.1% year-on-year — the strongest since 2020 — as first-home buyers drive demand and lower one-year mortgage rates boost spring activity.

Confidence could be further supported by the Reserve Bank’s decision to ease loan-to-value (LVR) restrictions from Dec. 1, allowing banks to lend more to borrowers with smaller deposits.

Outlook: Stability brings predictability for builders and lenders

Construction cost inflation has now been running below consumer inflation for several quarters, a sign of renewed balance in the sector.

“That stability helps developers plan with more certainty and supports a steady rebuild of activity,” Davidson said.

He said a sharp rise in costs remains unlikely unless demand surges or another supply shock occurs.

“If finance becomes more accessible and confidence improves, it’s reasonable to expect a lift in activity through 2026. Some increase in costs would follow naturally, though a major spike still looks unlikely,” Davidson said.

“Construction costs aren’t coming down, but the pace of growth has eased and the outlook is far more predictable.”

What this means for advisers

For mortgage and construction finance advisers, moderating build costs and improving buyer sentiment suggest a more supportive environment heading into 2026.

With LVR rules easing and cost inflation subdued, borrowers may find greater certainty and reduced risk of budget blowouts — setting the stage for a gradual recovery in new-build lending and small-scale developments.

Download the latest Cordell Construction Cost Index for Q3.

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