Construction costs are rising faster: how should builders price their work, and owners manage their budgets?

The Cordell Construction Cost Index (CCCI), released by Cotality on 8 October 2026, shows residential construction costs rose 1.7% in the third quarter compared with the previous quarter, the fastest quarterly increase since the end of 2022. Annual growth rose from 3.5% in the second quarter to 4.8%, exceeding the long-term average of around 4%.

When residential construction costs in New Zealand start rising faster, builders need to recalculate quotes for new projects, and owners need to examine their budgets more carefully. But an increase in the cost index does not mean every construction quote needs to rise by the same percentage.

For the industry, which costs are rising, who bears them, and how they should be reflected in the next quote have become questions worth examining.

Cost pressures intensified from the second quarter to the third

RNZ reporter Nona Pelletier’s coverage of the second quarter shows residential construction costs rose 1.1% in the three months to June, and 3.5% annually. At the time, Cotality had already noted that the period of relatively modest cost growth was coming to an end.

By the third quarter, quarterly growth had risen to 1.7%, above the 0.9% to 1.1% recorded over the previous three quarters. This represents an acceleration in growth and should not be interpreted as a return to the sharp increases of 2021 to 2022.

Reporting by Deborah Morris of The Post explains that the index tracks changes in the cost of building a standard single-storey, three-bedroom, two-bathroom detached home with brick veneer cladding and a tiled roof. It is a reference for observing trends, rather than a uniform quote for every housing type or individual project.

Actual costs still depend on location, design complexity, material choices and construction conditions. Cotality also cautions that its construction cost data is indicative and cannot replace an assessment of a specific project by a suitably qualified professional.

Which costs are pushing quotes higher?

Both Greg Ninness’s reporting on interest.co.nz and Cotality’s analysis identify materials, transport and fuel as sources of pressure.

The products involved include petroleum-related piping materials, PVC, sealants, roofing and ceramic tiles, reinforcing steel products and structural steel. According to the breakdown published by Cotality, materials account for around 50% of the index and wages around 40%, with the remaining approximately 10% covering other expenditure, including professional and consent fees. Changes in material costs therefore have a significant influence on the overall index.

These proportions describe the composition of the index and cannot be applied directly to every project. For example, homes with complex foundations, longer transport distances or more extensive customisation may have different cost structures.

A recovery in building activity is also changing the cost environment. Stats NZ announced on 1 October that 41,268 new homes were consented in the year to August 2026, an annual increase of 21%.

An increase in consents does not mean all those projects have started, nor does it mean every builder has a full order book. It signals a recovery in the project pipeline; actual construction activity and business revenue still need to be examined separately.

Fixed-price projects and new quotes face different pressures

Reporting by RNZ’s Susan Edmunds quotes Cotality head of research Nick Goodall as saying that some builders had previously absorbed cost increases themselves or were constrained by fixed-price contracts. As pressures persist, some costs are beginning to flow through to the construction prices consumers face.

This also explains why rising costs do not necessarily coincide with improving business profits: existing projects may continue to deliver lower margins, while quotes for new projects need to be recalculated.

However, this does not establish that builders can increase prices on all signed contracts. Whether prices under an existing contract can be adjusted depends on its specific terms, the variations involved and applicable requirements.

YIJU recommends that builders focus on clearly explaining three things when quoting:

1. The basis of the price: which version of the drawings, which product specifications and which supplier prices have been used.

2. How long the quote is valid: whether prices and supply terms need to be reconfirmed after it expires.

3. What constitutes a variation: how costs will be calculated and approved if the owner changes the design or materials, or if site work outside the agreed scope arises.

To manage the budget, owners should first compare the same scope of work

When costs are rising, pushing down the total price may not effectively control spending. If a quote omits work or includes provisional sums that are too low, additional charges may still mount later.

YIJU recommends that owners first require quotes to be based on clear drawings, specifications and scope of work, then compare different contractors:

For projects with uncertainties around foundations, underground services or the scope of work, a designer, engineer or quantity surveyor should first be engaged to assess them. Contingency funds should also reflect the project’s risks, rather than using the index increase as a uniform benchmark.

Once the budget is set, minimising last-minute changes to layouts, materials and equipment during construction can help reduce additional spending on repeat procurement, rework and programme adjustments.

Product choices should also account for installation and maintenance costs

Managing a budget involves more than comparing material unit prices.

Similar products may differ in installation time, associated components, transport methods and maintenance requirements. A lower purchase price does not necessarily mean a lower overall project cost, while a higher price does not automatically demonstrate better value over the long term.

YIJU recommends asking suppliers to set out each of the following: purchase price, installation cost, maintenance requirements, expected replacement cycle and warranty terms.

This information can help owners and their professional teams assess whole-of-life costs. However, concluding that a particular product saves money still requires actual quotes, technical documentation and reliable maintenance data.

Building new or buying an existing home: time to revisit the numbers

Susan Edmunds’s reporting raises a practical contradiction: while construction costs rise, existing home values may remain flat or fall, making buyers’ comparisons more complex.

This does not mean buying an existing home is necessarily better value. Existing homes may require repairs, renovation and equipment replacement, while a new build requires consideration of land, design, construction, financing and expenses incurred during the wait.

Ideally, comparisons should use similar locations and housing requirements, weighing the cost of necessary improvements to an existing home against the full cost of completing a new build.

The cost index can prompt buyers to revisit their calculations, but the final decision still needs to be based on the condition of the particular property and actual quotes.

YIJU commentary: clearer quotes make budgets easier to manage

We believe the key issues in this round of cost changes are how increases flow through to individual projects and how builders and owners allocate risk.

Builders need to verify supplier prices, delivery terms and the scope of their contracts. Owners need to understand what the quote covers and which costs remain uncertain.

As a next step, YIJU would benefit from interviewing builders, quantity surveyors and suppliers to verify the extent of material price increases and whether quote validity periods have changed, and to seek publicly shareable examples comparing quotes for the same scope of work. Only with this first-hand information can we further assess how cost pressures affect contract signing, construction and delivery.