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By RNZ

House building costs have risen at their strongest rate in nearly two years, suggesting the slowdown in cost growth has reached the bottom.

CoreLogic’s Cordell Construction Cost Index showed a growth rate of 0.6% for the three months ended June, for an annual rate of 2.7%, the strongest since the third quarter of 2023.

Chief property economist Kelvin Davidson said the increase was partly a reflection of the removal of a 1.1% fall a year ago and might not signal a return of price pressures.

“Although the annual growth rate has nudged higher, it’s important to recognise this is more about base effects than any significant re-acceleration.”

At the peak of the pandemic, building costs surged 10.4% and the long-term average was 4.2%, but Davidson said spare capacity had since increased in the sector as the number of houses being built has fallen sharply.

“That decline has taken the heat off both wages – which account for around 40% of the index – and material costs, which represent roughly 50%.”

The index is based on the cost of building a standard single-storey, three-bedroom house with two bathrooms, in brick and tile.

Build costs still high

The report showed varying price moves among key materials, with weatherboard 6% higher but decking timber and ceiling insulation 1% cheaper.

“Cost movements are now being driven by specific supply and demand dynamics rather than broad-based inflation,” Davidson said.

However, he said building costs remained high even if the growth was contained.

“Households can be more confident costs won’t run away during a project, but the total cost to build remains a hurdle. With ample existing stock on the market, builders may still face challenges attracting new projects in the short term.”

Davidson expected a gradual pick-up in the construction sector with population growth, easing interest rates and the loan-to-value and debt-to-income lending restrictions favouring new builds.

“Cost growth may well have bottomed out, with some renewed upward pressure possible in 2026. But a return to the double-digit growth rates of 2022 seems unlikely.”

– RNZ