NZ building relief: Diesel price drop flattens spiking construction costs
Tuesday, 30 June 2026
Fears of a prolonged period of sharp construction cost increases have eased, as new data shows costs have stabilised, but experts say the outlook remains uncertain.
The Middle East conflict-driven escalation in fuel prices hit the construction sector immediately, and hard, and there was widespread concern about how the sector would fare if the crisis continued long-term.
But Quotable Values’ latest Costbuilder figures show construction cost growth has stabilised and that there was minimal movement across key rates in June.
Costbuilder, an online building cost platform, monitors the costs of more than 10,000 building components including labour rates.
Read more:
QV CostBuilder spokesperson and quantity surveyor Martin Bisset said that after several months of fuel-related pressure, cost growth had taken its foot off the gas.
Diesel prices had fallen by a further 6.5%, and that helped reduce costs in the more fuel-intensive trades that relied heavily on machinery and transport such as excavation (down 1.5%), he said.
While excavation turned in the largest cost reduction, there were also small reductions in site preparation (down 0.4%), substructure (down 0.4%), exterior works (down 0.3%), piling (down 0.3%) and demolition (down 0.2%).
There were also small reductions in some concrete-related trades, with concrete down 0.3% and concrete blockwork down 0.5%.
Bisset said not all costs moved lower, with the plumbing and carpentry trades up 0.5% and 0.2% respectively due to a number of product price increases.
The broader picture was steadier, but diesel remained more than 50% higher than at the start of this year, so it was still an important factor to watch as the situation in the Middle East developed, he said.
“Anyone planning a project should continue to allow for some movement in costs, as some volatility remains.”
Property research company Cotality analyses residential building cost data, and their next Cordell Construction Cost Index is due out next week.
Cotality chief property economist Kelvin Davidson said it painted a similar picture to QV’s data, with residential building costs continuing to increase into the second quarter, but the rate of growth stabilising.
The annual pace of growth was likely to lift to 3.2% from 3.0% in the March quarter, but that remained below the long-term average of 4%, he said.
“Costs are not going crazy, and while some material costs have gone up, and some suppliers are signalling further increases, other materials have gone down.
“But there is a bit of uncertainty around whether some of the cost increases signalled at the height of the Iran crisis will come through now that fuel costs have come back quite a bit.”
More generally, the sector had been starting to grow again which put upward pressure on costs anyway, Davidson said.
“The Iran situation came along at the wrong time for the industry when it was just showing signs of growth. Now, people might go back into their shells and activity could slow again and impact on growth.”
It was difficult to forecast what might happen as there was still a lot of geopolitical uncertainty and it made the situation a bit of a moving feast, he added.
For Infometrics chief forecaster Gareth Kiernan, it was possible the price increases signalled by suppliers earlier on in the year were still coming through as they usually had a 90-day notification time.
But mitigating that to some degree was fuel costs, and particularly diesel, coming back more sharply and quickly than expected from the peak, he said.
“So while there’s still some cost growth coming through, there’s been a decrease from a month or so ago.
“We won’t see as much of those sustained cost increases that we were expecting due to the decline in pressure on the fuel front.”
There had been a lot of cost fears in the sector, particularly when it came to how increases might translate for local and central government infrastructure building plans, Kiernan said.
“Given their stretched budgets, a significant wave of cost increases as we saw four or so years ago might have had a big impact on activity.
“But some of those fears have now been allayed, and it is looking like some sort of volume growth will be achieved in that area.”
With residential building, there were broader economic concerns and the ongoing downturn in the housing sector, he said.
“It’s not as bad as it could be but there’s still likely to be a bit of a breather in terms of activity.
“That’s because the housing market has been negatively impacted by what has gone on geopolitically in terms of confidence and interest rate expectations.”