Building costs are rising again

New Zealand plumbers are being told to brace for a 25% price rise on plastic pipes from May. Bricklayers are receiving letters warning of 10-15% cost increases on materials. And Fletcher Building, which supplies more of what goes into a New Zealand home than any other company, has just flagged price hikes of up to 36% on its plastics products.

The catalyst is the Iran conflict, which has disrupted global oil markets, hiked diesel prices and throttled the supply of the petrochemical resins that underpin everything from pipes and insulation to solvents and adhesives. But the conflict is arriving on top of a decade-long trend in which building costs in New Zealand were already climbing at nearly double the pace of general inflation. The Iran shock is the latest chapter in a much longer story.

What the Fletcher announcement means

On 15 April, Fletcher Building chief executive Andrew Reding disclosed to the NZX that its Iplex pipe division and Fletcher Insulation were the company’s most exposed businesses. Price increases across the group’s divisions would range from 1-5% for less exposed products and up to 36% for plastics.

Fletcher consumes nearly 36 million litres of fuel annually, with diesel accounting for 94% of that, and every 10-cent rise in diesel costs the company around $3.4 million a year before mitigation.

The plastics exposure runs deeper than the fuel bill. The resins used to manufacture PVC and polyethylene pipes are petrochemical derivatives. When Iranian oil production is disrupted, resin supply tightens globally. Fletcher’s Iplex had already warned merchants of a 25% price rise from 1 May; Marley issued similar notices the same week. For plumbers and builders who had already priced jobs or lodged fixed-price contracts, those increases land as a direct hit on margin.

Fletcher is also flagging early signs of project delays as the cost shock filters through. That matters for the wider market: if developers start shelving or deferring projects because the numbers no longer stack up, the supply of new homes, which New Zealand has spent five years trying to increase, comes under pressure.

It’s not just plastics

The rising price of plastic pipes have made headlines because they’re the most oil dependent. But industry experts are flagging a much wider list of affected materials: aluminium (the Gulf produces significant volumes using petrochemical-derived energy to fire smelters), bitumen for roading, chemicals used in timber treatment, insulation products, adhesives, and sealants. Anything that is energy-intensive to manufacture, or energy-intensive to ship, is exposed.

AUT construction professor John Tookey said the building industry is going to get tanked. “Anything that is energy-intensive is going bananas.” He estimated potential rises in construction materials of 30-50% if the conflict is prolonged, a scenario that would dwarf even the post-Covid cost surge of 2021-22.

Building Industry Federation chief executive Julian Leys reported one member importing from China being asked to pay 22% more for the same product, driven by shipping charges up 44% and higher port and freight costs. The three-month notice requirement for price rises under NZ supply agreements means May and June are when the first wave of increases becomes contractually locked in.

Global data confirms the trajectory. US construction input prices rose at an annualised rate of 12.6% through the first two months of 2026 – before the Iran conflict fully escalated. By March, crude petroleum prices had risen 20.2% month-on-month, pushing construction inputs up 2.2% in a single month and lifting the year-on-year figure to 4.8%.

A decade of structural cost inflation

The Iran shock has been sharp, but it arrives on top of a cost base that has been climbing for years. QV CostBuilder data shows residential construction costs in New Zealand rose 61% between 2015 and 2025 against general CPI inflation of 33% over the same period. Building-cost inflation ran at roughly 1.8 times the pace of everyday price increases across the decade.

Between 2020 and 2024, the cost of building a standard 150–230m² home rose 38%, according to Buildersandcontractors.co.nz. There was some relief in 2024 and into 2025 as the construction sector cooled and materials prices stabilised. Cedar weatherboards, for example, which had risen from $17 per metre in 2015 to a peak of $64 in 2022, pulled back to around $53.

Times have changed. The Q4 2025 Cordell Construction Index reading showed residential costs rising 0.9% in a single quarter – the largest jump in over a year – with annual growth accelerating to 2.3%. QV CostBuilder’s November 2025 update flagged timber and cladding prices moving higher again. The sector was already tracking back toward its long-run cost inflation trend before the Iran shock added a new variable.

What this means for property investors and developers

Three things follow from rising construction costs, and they pull in different directions depending on where you sit in the market.

For existing property owners, cost inflation broadly supports property values. If it costs more to build a new home, the replacement cost of existing stock rises. That sets a floor under property prices, particularly for well-maintained homes in areas where land is constrained. This dynamic partly explains why standalone houses have tended to hold value better than new townhouses through the current cycle: they carry a higher land component, and rising build costs reinforce that.

For developers and those buying off the plans, the picture is more complicated. Fixed-price contracts struck before May’s price increases take effect may already be underwater on materials. Developers who priced projects in late 2025, when construction costs were near their flattest in years, are now facing input costs that are moving against them. The risk of project delays or abandonments is real. Fletcher itself flagged early signs of softening demand as buyers push back on price increases.

For investors planning a renovation or new build, the calculation now favours acting sooner rather than later, but with eyes open. Cotality’s Kelvin Davidson noted that building costs are about half materials, half wages. Labour costs are not yet under the same pressure as materials. That means the magnitude of the shock to total build costs may be more modest than the eye-catching plastics headline suggests, unless the conflict is prolonged and broader material categories catch up. Davidson’s base case is that a post-Covid-style spike remains unlikely, but he is watching the data closely.

The longer view

New Zealand’s building cost problem is structural, not just cyclical. The country builds in small volumes relative to other developed economies, which limits the purchasing power of local suppliers. It relies heavily on imported materials – plastics, aluminium, steel, glass – leaving it exposed to exactly the kind of global supply chain shock now unfolding. And its construction workforce, while recovering, contracted sharply through 2023 and 2024 as the sector downturn shed experienced tradespeople.

The Medium Density Residential Standards and associated upzoning reforms were designed to address undersupply by making it easier to build more homes. They have worked, up to a point: consent volumes are recovering, and the multi-unit pipeline remains active. But those policy gains are only durable if the cost of building remains at levels where development stacks up financially. A sustained cost shock that prices development out of feasibility would undermine the very supply response the reforms were meant to trigger.

The Iran conflict may resolve and oil prices stabilise, but the decade-long trend of building costs outrunning general inflation is unlikely to reverse without structural changes to how New Zealand builds. We need more competition among material suppliers, more prefabrication, and greater productivity in the construction workforce. None of those things move quickly.

For advice on how rising building costs affect your investment decisions call Goodwins on 0800 GOODWINS.