Rising diesel prices begin to lift construction costs, QV says

Rising fuel prices are starting to push construction costs higher, according to property valuer Quotable Value (QV).

QV's CostBuilder platform shows headline cost increases remained contained in March, rising just 0.4 percent.

But QV says rapidly rising diesel prices have begun flowing through into fuel-intensive parts of the sector.

Excavation costs jumped 7.8 percent, piling rose 1.4 percent, and demolition increased 1.3 percent - largely due to the surge in diesel prices.

Site preparation and substructure costs also rose by 2 percent and 1.8 percent respectively as fuel costs pushed higher.

QV CostBuilder quantity surveyor Martin Bisset said fuel was currently the key cost driver.

"The increase in the price of diesel has had an immediate impact on areas such as site preparation, excavation and substructure work, where fuel is a significant input for machinery used in these operations."

Bisset said that while the recent fuel spike was significant, its full impact on overall building costs was not yet clear.

"New Zealand is particularly exposed to changes in fuel and shipping costs, so recent geopolitical events in the Middle East are relevant for the local construction sector, and they will inevitably have an effect."

He said that although rising fuel prices had begun affecting individual stages of the building process, the full impact on total building costs would not become clear until next month, although the country was not facing the sharp and sustained cost escalation seen during the pandemic.

"We're not seeing the widespread supply-chain disruption of recent years, but fuel and freight are certainly re-emerging as important cost drivers."

Bisset said the current fuel price increases appeared to be a short-term spike, and that fuel prices were expected to eventually stabilise, easing some of the current pressure.

Across the wider construction sector, cost movements remain mixed: plasterboard and insulation rose in price, while copper and steel pipework declined.

Overall, Bisset said the market remained relatively balanced, though with a higher degree of uncertainty.

"The key takeaway is that cost growth is still relatively moderate, but volatility has increased," he said.

Sign up for Ngā Pitopito Kōrero, a daily newsletter curated by our editors and delivered straight to your inbox every weekday.