Residential construction costs shot up in Q3, pushing up the cost of new homes

The cost of building a new home increased significantly in the September Quarter (Q3) of this year, according to the Cordell Construction Cost Index, compiled by property data company Cotality.

Residential building costs rose by 1.7% in Q3, which was the fastest quarterly increase in building costs since late 2022.

Over the previous three quarters, building costs increased by between 0.9% and 1.1%.

The latest increase also pushed up annual residential building cost growth from 3.5% in Q2 this year to 4.8% in Q3, which was the strongest annual increase in costs since Q2 2023.

That means residential building costs are now increasing at an annual rate that's well above the long term average of 4.0%.

Higher material, freight and fuel costs all contributed to the latest overall cost increase, assisted by an increasing level of residential construction activity.

The Index recorded notable cost increases for petroleum-based plumbing products, PVC, sealants, roof and ceramic tiles, reinforcing products and structural steel.

Materials are the biggest single contributor to the Index, accounting for half of the costs recorded, with wages making up around 40% and other expenses such as professional and consenting fees making up the balance.

Cotality NZ Chief Property Economist Kelvin Davidson said the latest result marked a clear shift from the more subdued conditions of the past two years.

"After a period of subdued changes, the cost to build a new house in New Zealand has started to rise more materially," Davidson said.

"Builders have absorbed some cost increases, particularly where existing projects are covered by fixed price contracts.

"However, pricing for upcoming work is beginning to rise, suggesting households considering a new build may face a different cost environment in the months ahead.

"This may be challenging while the values of existing properties remain relatively flat and mortgage rates are rising.

"For some households, the changing cost equation could influence the choice between undertaking a new build and purchasing an existing property," he said.

And there may be more pressure to come.

"After a significant downturn that had begun to turn a corner, renewed global uncertainty is an unwelcome development for the construction industry," Davidson said.

"Further cost pressures may still flow through the pipeline," he said.