Despite this small uptick, cost growth remains below the long-term quarterly average of 1.0 per cent, indicating that price pressures in the construction sector are still relatively contained.
Annual construction cost growth reached 2.7 per cent, the fastest pace since Q3 2023, though Cotality Chief Property Economist Kelvin Davidson said this is largely due to mathematical factors rather than genuine acceleration in costs.
“Although the annual growth rate has nudged higher, it’s important to recognise this is more about base effects than any significant reacceleration,” Mr Davidson said.
“At 2.7 per cent, annual cost growth is still well below the long-term average of 4.2 per cent, and a far cry from the COVID-era peak of 10.4 per cent in late 2022.”
He said the slowdown in construction costs can be attributed to reduced workloads across the sector over the past few years, which has created spare capacity and eased pressure on both wages and materials.
New dwelling consents have fallen significantly, dropping from more than 51,000 in the year to May 2022 to fewer than 34,000 currently.
The June quarter showed varied movements across different product lines with weatherboard cladding experiencing a 6 per cent increase, while prices for decking timber and ceiling batts decreased by 1 per cent.
“Cost movements are now being driven by specific supply and demand dynamics rather than broad-based inflation,” Mr Davidson said.
“We’re seeing more nuanced and patchy shifts that reflect a normalising market.”
Despite the slower growth rate, overall build costs remain high in absolute terms.
This continues to present challenges for the construction industry, as potential clients may opt for existing properties rather than new builds.
Several factors could support a gradual increase in construction activity in the coming months, according to Mr Davidson.
Population growth remains positive, mortgage rates have decreased, and regulatory settings continue to favour new-build projects over existing homes.
Mr Davidson said that as the broader economy recovers, the construction sector is expected to follow suit, though any future cost increases are likely to be moderate rather than dramatic.
“Cost growth may well have bottomed out, with some renewed upward pressure possible in 2026,” Mr Davidson said.
But a return to the double-digit growth rates of 2022 seems unlikely.”
