Diesel pushes building costs up again just as house values fall for a fifth month

Construction costs have started climbing again after a quiet winter, and the reason sits in the fuel tank rather than the timber yard.

The August update of QV CostBuilder, the building cost database run by Quotable Value, shows the average building cost per square metre for residential buildings rose 1.1 percent over the quarter. That lifts annual residential building cost growth to 3.3 percent. It follows two months in which costs barely moved at all, and it lands just as builders were starting to believe the worst of the cost squeeze was behind them.

Diesel is doing most of the pushing. QV CostBuilder quantity surveyor Martin Bisset said in the company’s release on 1 September that fuel “remains one of the most volatile inputs in construction”. He said lower diesel prices had helped keep construction costs broadly stable in June and July, “diesel bounced back in August, and construction costs have moved higher as a result”. The effect, he said, “is most obvious in fuel-hungry trades such as excavation and demolition, where machinery and transport make up a much bigger part of the job”.

The trade-level numbers bear that out. Excavation costs rose 4.3 percent in August, driven largely by higher diesel rates. Demolition rose 3.7 percent, reflecting both diesel and dearer imported fill material. Across all trades the average rate increase from July to August was a much milder 0.5 percent, with roof coverings up 1.7 percent, joinery up 1.4 percent and glazing up 0.9 percent. The August update applied 11,400 current material prices across six centres, being Auckland, Hamilton, Palmerston North, Wellington, Christchurch and Dunedin, producing 26,500 data changes.

The diesel story is easy to trace in the weekly fuel figures. The Ministry of Business, Innovation and Employment’s weekly fuel price monitoring has the national diesel board price bottoming out at 243.0 cents a litre in the week ending 17 July, after a long slide from 321.5 cents in mid May. It then turned around hard, reaching 271.7 cents by 7 August and sitting at 270.9 cents in the week ending 28 August. That is a rise of almost 28 cents a litre in six weeks, and it leaves diesel 42.9 percent dearer than the same week a year ago. You can follow the weekly movements in our fuel price tracker, and we covered the August climb when it was under way.

Diesel matters more to a building site than most people outside the industry realise. Every digger, truck, telehandler and generator on a residential job runs on it, and so does the cartage that brings the fill in and takes the spoil away. Those costs land at the front of a build, in the groundwork, long before a single frame goes up. A homeowner who priced a site cut in July and signs the contract in September is looking at a different number for the same hole.

Non-residential work has been more sheltered. The average building cost per square metre for non-residential buildings, excluding educational buildings, rose 0.5 percent over the quarter and 2 percent over the year, less than half the residential rate.

Bisset was careful not to overstate it. He said excavation and demolition “are particularly exposed to fuel movements, so when diesel jumps, those trades tend to feel it quickly”, and that the broader picture “is still one of modest growth”. Construction cost inflation, he said, “is not running away, but neither has it disappeared”.

The timing is what makes this awkward. The building industry has only just turned the corner. Stats NZ figures released on Friday show the seasonally adjusted volume of building work put in place rose 4.8 percent in the June quarter, with residential up 4.8 percent and non-residential up 3.3 percent, and total building value of $8.2 billion for the quarter, up 5.2 percent on a year earlier. That was the first quarterly rise since 2023. Consents point the same way. There were 40,908 new homes consented in the year ended July 2026, up 21 percent on the previous year, an increase of just over 7,000 homes. Stats NZ economic indicators spokesperson Michelle Feyen said annual home consent numbers “have continued to strengthen in recent months, with increases in both stand-alone houses and multi-unit homes”.

So more houses are being built, and each one is getting slightly dearer to build. The problem is that the thing being built is not getting dearer to buy. Cotality’s Home Value Index for August recorded a fifth consecutive monthly fall in national residential values, with the national median dwelling value slipping below $800,000 to $797,944, down 0.36 percent for the month, down 1.29 percent over three months and 0.97 percent lower over the year. Cotality put the weakness down to elevated stock levels and rising mortgage rates giving buyers no reason to hurry.

That is the squeeze in one sentence. Build costs up 3.3 percent over the year, finished values down about 1 percent. For a developer working on a thin margin, a spread of four percentage points between what a house costs to produce and what it fetches is the difference between a project that proceeds and one that sits on the shelf. It is also why a stronger consent pipeline does not automatically become stronger construction, since a consent is permission to build, not a commitment to do it.

For anyone about to build, the practical advice is the same as it has been all year, which is to leave room in the budget. Fixed price contracts protect the buyer but push the risk onto the builder, and builders price that risk in when fuel is jumping around by more than 11 percent in six weeks. Bisset put it plainly when he said anyone budgeting for a build “still needs to allow for movement, particularly in fuel-sensitive parts of the job”.

The wider lesson is how far a shipping lane can reach. Diesel is dearer this year because of the disruption to global refined fuel supply, and that flows through to the price of the hole in the ground under a new house in Hamilton. It shows up in the terms of trade, in the freight bill on a box of nails, and now in the square metre rate a quantity surveyor writes on a job. Very little of the New Zealand economy is more than two steps away from the price of a litre of diesel.

What are you seeing in build quotes at the moment. If you have priced a job recently, tell us what moved and by how much in the comments below.

This article was written by AI, briefed to report the facts, hopefully without some of the bias people bring to the job 🙂