Costs are rising, but not alarmingly
Quarterly cost growth (0.9%) has picked up, yet it remains below the long-term average.
Annual growth of 2.3% is modest by historical standards and far from the post-COVID spike.
This suggests inflationary pressure is returning, but in a measured way.
Demand is coming back as conditions ease
Lower mortgage rates and improved business confidence are unlocking delayed projects.
Building approvals nearing a three-year high indicate a genuine pipeline forming.
Spare capacity in the industry is starting to be absorbed, which naturally pushes costs higher.
Labour constraints are an early warning sign
The NZIER survey showing increased difficulty in finding skilled workers aligns with Davidson’s comments.
Labour makes up ~40% of construction costs, so tightening labour markets could be the main driver of future cost increases rather than materials.
2026 looks like the real expansion year
Developers were cautious through much of 2025 due to oversupply, weak demand, and rising unemployment.
With financing conditions improving, 2026 is shaping up as the year when activity—and cost pressures—become more noticeable.
No repeat of the COVID-era shock expected
Unlike 2022, there’s no widespread supply-chain disruption or extreme wage shock.
Any acceleration in costs is likely to be gradual rather than a sudden spike.
Bottom line:
New Zealand’s construction sector is shifting from stagnation to recovery. Cost inflation is re-emerging, driven by rising demand and tightening labour supply, but remains well-contained for now. If interest rates stay supportive, 2026 could bring stronger activity—and firmer cost growth—without the volatility seen during the pandemic years.
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