Increased construction costs are restricting the Hawke's Bay building boom.

Residential house prices in the region have risen 20 per cent over the year, precipitating growth in new buildings.

Rob Douglas, of Added Valuation, said he had completed a career-high number of valuations for construction purposes recently, but realtor and developer Simon Tremain said increasing construction costs were making new homes less attractive.

Mr Tremain has residential land which his company could either develop or sell, but rising building costs were increasingly making the sale of bare land more viable.


"In the real estate market there is always a bit of a price lag between an old home and a new home but sometimes that gap changes," he said.

"At the moment old homes have caught up to new homes, but everyone you talk to now, when they are getting quotes to build new, are finding it expensive.

He said builders were "flat out" and there were two recent rises of material costs.

"Anyone looking to build new themselves is weighing it up against the cost of existing housing."

TUMU Timbers ITM managing director John O'Sullivan said demand from China was driving high export log prices.

"The log prices sawmills are currently paying for their logs is probably as high as they have ever been," he said.

"When raw materials increase and you have strong demand domestically, you have to compete to get the logs, so that flows through to higher timber prices."

He said some building-material manufacturers were at capacity, so were less inclined to discount.

Infometrics senior economist Benje Patterson said building activity gave a widespread boost to the economy.

"It is not only your builders and tradespeople that are getting work, but they are leading on a lot of suppliers," he said.

"It is not only the owners of those businesses but the workers that are benefiting, not to mention the fact that some of the money going into the back pocket is going to circulate through the local economy at the supermarket or at the pub. It does spread it quite widely."

He said broad-based growth in Hawke's Bay gave people confidence to invest in new houses plus immigration fuelled demand.

Hawke's Bay's wide exposure to the parts of the primary sector consistently doing well, while escaping much of the dairy industry's woes because of low exposure, was "the engine behind the scenes".