A Christchurch construction company says figures showing a 4.6 percent increase in the cost of buying and building new homes are conservative and it's been experiencing much higher costs.
The increase, recorded by Statistics New Zealand, was for the year ending March and is the highest annual rise since 2008, the peak of the last housing boom.
Director of the Christchurch-based Buildtech, Israel Cooper, said in the past year the cost of labour and materials has risen much faster than the national average.
He said this has put a squeeze on already thin margins.
Mr Cooper said a competitive market means most Christchurch builders haven't been able to pass the increased costs on to clients.
Professor Emeritus of Property Studies, Bob Hargreaves, said as well as labour shortages there are other key factors driving up costs in New Zealand relative to the likes of Australia and the United States, where new homes are markedly cheaper.
He said this includes the greater economies of scale that are possible in big markets filled with large companies.
Chairperson of the Productivity Commission, Murray Sherwin, said even without increased costs, the sector has been reluctant to build houses at the cheaper end of the market.
He said this is partly to do with the increasing cost of land but also a lack of will. He said there are large construction firms already operating in New Zealand that are capable of providing good quality low cost housing.
Murray Sherwin said local and central government need to work with large developers to increase the number of affordable homes being built.
He said there are already encouraging signs of growing co-operation in the housing accords between central and local government in Auckland and Christchurch to open up more land for housing.
The Government's removal of import tariffs on building supplies is expected to remove $3,500 from the cost of building a new home which equates to about one percent of the total cost.