Rising diesel costs threaten build budgets and borrowers’ serviceability
Construction costs are reacting to a sharp rise in fuel prices, and while overall cost escalation remains modest, the latest QV CostBuilder update points to diesel as a growing threat to project budgets, contingencies, and ultimately borrowing capacity.
Across more than 11,000 material prices and construction rates in major centres, elemental and trade costs rose by an average of 0.4% over the month. That headline number looks contained, but the detail shows pronounced pressure in fuel‑intensive trades, which may feed through to contract variations and higher end build prices.
That cost pressure is emerging against a softer price backdrop, with the Reserve Bank expecting house prices to be broadly flat through 2026 after falling about 20% from their pandemic peak, leaving borrowers with less of a “wealth effect” buffer if build costs climb.
Excavation, piling and site works lead the rises
At a trade level, excavation posted the largest monthly increase, up 7.8%, with piling and demolition also rising by 1.4% and 1.3% respectively as diesel costs surged. Site preparation and substructure costs climbed 2% and 1.8%, while exterior works were up 1% over the month.
QV CostBuilder spokesperson and quantity surveyor Martin Bisset said fuel is clearly the main driver.
“The increase in the price of diesel has had an immediate impact on areas such as site preparation, excavation, and substructure work, where fuel is a significant input for machinery used in these operations. That’s where the most upward pressure on construction costs is coming from right now,” Bisset said in a media release.
For first-home buyers and property investors relying on construction loans or turnkey contracts, these shifts increase the risk of cost overruns that could push required borrowing higher or stress existing approvals if valuations lag.
In a market where national median prices are only edging up by around 0.4% year‑on‑year and sales volumes are soft, there is also less room for unexpected cost increases to be absorbed by rising values.
Short-term spike, but volatility on the rise
Bisset noted that the current environment is different from the COVID‑19 era of broad supply chain chaos, even as global oil prices and Middle East tensions filter through to local fuel and freight costs.
“We’re not seeing the widespread supply chain disruption of recent years, but fuel and freight are certainly re-emerging as important cost drivers,” he said.
Bisset also stressed that “it’s important to recognise that this appears to be a short-term spike at this stage”.
Recent setbacks on some large apartment and tower projects in Auckland and Wellington, where schemes have been put on hold or moved into receivership, highlight how quickly shifts in costs and confidence can test development feasibility.
As Bisset concluded, “The key takeaway is that cost growth is still relatively moderate, but volatility has increased.”
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