Construction costs recorded their largest quarterly increase in more than a year in the three months to December, as early signs of a recovery begin to emerge across the building sector.
The latest Cordell Construction Cost Index (CCCI) shows residential building costs rose 0.9% in the December quarter.
While this was the biggest quarterly increase since the September quarter of 2024, when costs rose 1.1%, it remains slightly below the long-term quarterly average of 1.0%.
The annual rate of construction cost growth lifted to 2.3%, up from 2.0% in the September quarter, but is still well below the long-term average annual growth rate of 4.1% recorded since late 2012.
Cotality chief property economist Kelvin Davidson says construction costs are continuing to rise, but the pace of growth remains contained.
“We are certainly not seeing the extreme inflation experienced in the post-COVID phase, when the CCCI annual growth rate peaked at more than 10% in late 2022. During that period, there were supply chain issues for key materials such as plasterboard and rising wages also drove up costs significantly,” Davidson says.
“However, although they’re not rising to any huge degree at present, costs haven’t seen significant falls either. Following the previous growth phase, the overall level of cost to build a new dwelling remains elevated even though the growth rate has cooled,” he says.
Recent data also points to a turnaround in building activity, with the 12-month rolling total of new dwelling consents rising to more than 35,500 in October.
Davidson says this marks a shift after a period of stagnation through late 2024 and the first half of 2025.
“After peaking at more than 51,000 in the 12 months to May 2022, the number of new dwellings consented dropped to a low point between 33,500 and 34,000. We are now seeing a recovery that aligns with anecdotal evidence that builders are becoming busier again,” he says.
“This shift reflects lower mortgage rates and increased ability for households to finance projects or buy off-the-plan. The loan-to-value ratio and debt-to-income ratio rules both offer exemptions for new builds, providing a further tailwind for the sector,” he says.
Looking ahead, Davidson says the construction sector is positioned to expand again in 2026, after the recent downturn allowed building cost growth to flatten.
“The latest CCCI figures remain relatively controlled, although as the industry starts to recover more clearly in 2026, construction cost growth could pick up again. However, a spike similar to the post-COVID phase remains unlikely,” he says.
The CCCI is made up of around 50% materials, 40% wages and 10% other charges such as professional fees.
Visit the Cordell Construction Cost Index (CCCI) page here.
