New Zealand home-building costs rose 1.7% in the September quarter, the fastest quarterly increase since late 2022, as higher material prices and stronger construction activity added to cost pressures, Cotality said in a Thursday report.

According to the Cordell Construction Cost Index (CCCI), annual growth accelerated to 4.8% in the September quarter from 3.5% in June, marking its strongest increase since June 2023 and exceeding the long-term average of 4%.

The construction sector has picked up, with annual new dwelling consents rising from fewer than 34,000 to more than 40,000, while higher fuel, freight and material costs continue to add pressure.

Materials make up around 50% of the CCCI, compared with 40% for wages and 10% for other expenses, meaning fluctuations in material prices can significantly affect the overall index.

Cotality NZ Chief Property Economist Kelvin Davidson said builders absorbed some increases on fixed-price projects, but pricing for upcoming work was starting to rise.

Further cost pressures could emerge amid global uncertainty, while flat property values and rising mortgage rates could make it harder for builders to pass on higher costs and may encourage households to choose existing homes over new builds, Davidson added.