Construction costs are flatlining, not rising

Wednesday, 4 June 2025

The cost of building a standard home in the main centres rose by 1.3% over the last year.

It’s a sign of the times: construction costs are no longer skyrocketing - they are now flatlining and that reflects the industry downturn.

But it is good news for developer margins and for those building a new home.

Quotable Values’ latest Costbuilder figures are out and they show the cost of building a standard three-bedroom home in the main centres rose just 0.1% over the last three months.

That was down from a 0.4% increase in the first quarter of this year.

On an annual basis, the cost was up by an average of 1.3%. It was a stark contrast to the double-figure growth experienced from 2021 to 2023, which peaked at 20.9% in the year to June 2022.

Construction cost increases have dropped as inflation has eased.

CostBuilder spokesperson Martin Bisset said the ongoing deceleration in construction cost inflation signalled the broader industry slowdown.

'With subdued demand and tighter economic conditions, we’re now seeing many building material prices either holding steady or trending downward.'

Where previously labour costs surged due to shortages, particularly in skilled trades, they were now plateauing, he said.

'This is a positive for developers managing tighter margins in a cooling market.'

Costbuilder monitors the costs of more than 8000 building components including labour rates, and during the Covid era the costs of all components of construction went through the roof due to supply chain problems and inflation.

But in the years since cost increases have dropped significantly as inflation has eased. At the end of last year the annual increase of 1.5% was the slowest rate since records began in 2015.

Bisset said costs had remained steady, and the figures told a story of stability rather than volatility.

Labour rates have remained stable, up 1.8% over the year to March.

There were increases in some elemental prices since the last update, the figures showed. Formwork costs, exterior walls and exterior finish costs were all up 0.3%.

But steel framing costs fell 5.7% over the quarter, while structural steel dropped 2.1%, site preparation costs were down 1.0%, and the costs of suspended ceilings and fire proofing fell by 4.6% and 3.2%.

Labour rates had remained relatively stable, up 1.8% over the year to March, as the downturn in construction activity eased pressure on the labour market, Bisset said.

But the plateauing of construction costs did not mean predictability for every project, he said.

“The complexity, level of finish, and design elements will always have a major influence on overall cost, and geopolitical instability has the potential to impact prices in the future.”

QV’s data also showed the cost of building non-residential buildings increased by just 0.1% over the quarter, and by 0.9% annually.

The construction industry has been struggling through a prolonged downturn, but Westpac senior economist Satish Ranchhod has said the seeds of an eventual recovery are in place, with financing costs down sharply and home sales back around average levels.

“Those conditions are likely to support a lift in the number of new developments consented through the latter part of this year, with a lift in building activity to follow that.”