Deceleration in construction cost increases, CoreLogic reports
New Zealand’s residential construction sector is experiencing a dramatic slowdown in cost increases, with the latest figures from CoreLogic NZ’s Cordell Construction Cost Index (CCCI) indicating a growth rate of just 0.9% over the past year.
This rate, noted in the Q1 2025 report, represents one of the slowest annual increases since the index’s inception in 2012.
CCCI growth slows markedly
The first quarter of 2025 saw the CCCI, which measures the cost to build a typical new dwelling, rise by only 0.3%. This is a decrease from the 0.6% growth observed in the fourth quarter of 2024, and significantly below the long-term quarterly average of 1%.
According to Kelvin Davidson (pictured), chief property economist at CoreLogic NZ, this marks the second-lowest annual increase recorded since 2012.
“After several years of intense upward pressure, construction costs have now settled into a much slower rate of growth,” Davidson said. “But this is a moderation, not a retreat. Labour doesn’t tend to get cheaper, and while materials pricing has flattened out, we’re not seeing any decline in the overall cost to build.”
In a related trend, March saw property values in New Zealand increase by 0.5% to $812,195, marking the highest value since June 2024 and demonstrating a gradual recovery from a significant 16.3% decline from their peak in January 2022.
This suggests a stabilising real estate market, with property values recovering amidst more stable construction costs.
Material costs stabilise in Q1
During the March quarter, there were varied changes in material costs.
Roof flashings and sheet metal prices increased by 3–4%, structural steel saw a modest rise of about 1%, whereas kitchen cabinetry and plumbing PVC pipework and fittings experienced decreases of 2% and 3%, respectively.
These fluctuations signify a return to more typical market conditions following the turbulent cost surges of 2021 and 2022.
“We’re well past the extremes of 2021 and 2022, where costs surged across the board,” Davidson said. “These days, we’re seeing more nuanced movements, driven by specific supply and demand factors rather than industry-wide pressure.”
Building consents decline, cooling construction costs
The recent decline in new dwelling consents and subsequent construction activities has contributed to the cooling of cost increases, CoreLogic reported.
According to Statistics NZ, approval rates have dropped across most regions over the past year, with the exception of Otago, which saw a 25% increase. Nationally, consent volumes are approximately one-third below their peak levels.
“Some builders now have spare capacity, which is helping cap further price rises,” Davidson said.
Construction demand may rise, costs stabilise
Looking forward, the easing of interest rates and favourable lending conditions for new builds might encourage a modest increase in construction demand.
However, Davidson cautioned against expecting a return to the double-digit cost growth rates seen in 2022.
“If new-build activity picks up again, and there are signs it might, we could see construction costs start to rise a little more quickly over the next year or two,” he said.
Yet, the CoreLogic economist emphasised that the key trend for this year is stabilisation: “Construction costs are no longer spiraling but they’re also not falling. For now, we’re in a holding pattern, which will come as a welcome relief for builders, developers, and households alike.”
This period of relative calm in construction cost increases offers an essential breather for the industry, potentially stabilising further as market conditions continue to adjust.
