Construction costs forecast to rise

Data indicates that building a house will likely become more expensive in 2026. Cotality’s latest Cordell Construction Cost Index (CCCI) shows residential building costs increased by 0.9% in Q4 2025.

Though it’s the largest quarterly rise since Q3 2024 (1.1%), the figure remains below the long-term average of 1%, indicating stability.

With a hopeful outlook, Cotality Chief Property Economist Kelvin Davidson said while construction costs continue to increase, the pace of growth remains contained.

The annual pace of growth rose to 2.3% from 2% in Q3 of 2024. That’s still well below the long-term average, which has been an annual growth rate of 4.1% since late 2012.

A higher growth rate means that construction costs are increasing more rapidly, while a slower or negative growth rate indicates costs are stabilising or falling.

“We are certainly not seeing the extreme inflation experienced in the post-COVID phase, when the CCCI annual growth rate peaked at more than 10% in late 2022.”

During that period, there were supply chain issues with key materials such as plasterboard, and rising wages also significantly increased costs.

“However, although they’re not rising to any huge degree at present, costs haven’t seen significant falls either,” Davidson said.

“Following the previous growth phase, the overall level of cost to build a new dwelling remains elevated even though the growth rate has cooled.”

The year-long total for residential consents is steadily rising again, reaching more than 35,500 in October.

Davidson said this marks a turnaround following the period of stagnation (albeit at a high level) observed throughout late 2024 and the first half of 2025.

“After peaking at more than 51,000 in the 12 months to May 2022, the number of new dwellings consented dropped to a low point between 33,500 and 34,000.

“We are now seeing a recovery that aligns with anecdotal evidence that builders are becoming busier again.”

This shift reflects lower mortgage rates and households’ increased ability to finance projects or buy off-the-plan.

“The loan-to-value ratio and debt-to-income ratio rules both offer exemptions for new builds, providing a further tailwind for the sector.”

Multi-unit homes continue to drive an increase in new homes consented in New Zealand. There were 35,969 new homes consented in Aotearoa New Zealand in the year ended November 2025, up 7.0% compared with the year ended November 2024, according to Stats NZ.

“In the year to November 2025, multi-unit homes drove the increase in new homes consented,” economic indicators spokesperson Michelle Feyen said. “That’s reflected in the number of townhouses, flats, and units being consented.”

Regionally, Auckland continued to account for a large share of new home consents, particularly for townhouses, flats, and units, with Canterbury, Otago, and Wellington also contributing to growth. Waikato also recorded an increase in new home consents over the year.

Davidson said the previous downturn has allowed building costs to flatten after a period of strong increases.

“The latest CCCI figures remain relatively controlled, although as the industry starts to recover more clearly in 2026, construction cost growth could pick up again. However, a spike similar to the post-COVID phase remains unlikely.”

The CCCI is determined as follows: 50% by materials, 40% by wage costs, and 10% by other expenses, such as professional fees and consents.