A slowdown in people wanting to build a new house has caused shockwaves as the ''buyer gap between getting a new build or buying an existing home is widening''.
Industry leaders warn the housing crisis could deepen and property prices could spiral ''out of control'' again if new builds stall.
Sales and inquiries, amid rising material costs and supply chain issues, have dropped around the country New Zealand Master Builders Association says as lending becomes tougher and banks want fixed-price contracts.
One of New Zealand's largest banks said less than 15 per cent of its home loans issued in the last six months had been for construction although the number remained stable.
Minister of Housing Megan Woods said the only way the country can get out of the housing crisis is to build its way out.
''That's why our policies to stabilise house price growth and tip the market toward first-home buyers is geared toward new builds and we're continuing to see positive signs as regards the continued interest in building new homes and activity in the sector.''
In the year to March 2022, a record 50,858 consents were issued for new homes, up 24 per cent from the previous year.
Master Builders Association national vice-president Johnny Calley, of Tauranga-based Calley Homes, said there was no doubt New Zealand needed ''more houses on the ground''.
However, in his view, the current banking system settings had dampened people's ability to access finance and a downturn was imminent.
High material prices and supply chain delays combined with rising interest rates and high debt servicing ratios had forced many people out of the new-build market.
''They are either looking at buying an existing house or doing renovations to their existing home.''
Calley said fixed-price contracts burdened builders with all the risk and cost escalation clauses that needed to be included.
''If the building company collapses the banks don't win either. So it's about the banks working in collaboration with the construction industry ... to get a clear understanding of what a fair contract looks like and it has the flexibility to sustain the increases in a fair way''.
Concerns were already rapidly rising.
''We are getting told by our members all over New Zealand that sales have dropped and inquiry has dropped with it for new build homes.''
New Zealand Certified Builders chief executive Malcolm Fleming said its members had indicated future inquiries for new builds were drying up.
Members were reporting full-forward workloads for the next 12-24 months but new inquiries for home builds and renovations were easing.
The NZCB fixed-price contract includes a cost fluctuation clause but the majority of members were using its cost and mark-up contract for their projects.
Barrett Homes Bay of Plenty branch manager Lianne Simpkin said inquiries had slowed and ''the gap between new builds and existing homes is starting to reappear''.
All lending institutions had varying conditions and the key was matching the client to the right lender, she said.
''Buyers are considering a variation of options to secure their first home including shared options with family or friends. While cost hikes have affected affordability the government interest deductibility rules are still making new builds attractive for investors.''
As consumers were more cost-conscious it was building more affordable homes including duplexes, terraces and quadplex in the Bay of Plenty.
Classic Group managing director Matt Lagerberg said many banks request fixed-price contracts, especially for clients who only just pass the lending threshold for approval.
It was accessing fixed-price contracts on an individual basis.
''We can offer fixed-price contracts when we time the release of house and land packages just prior to construction commencing, enabling us to lock in the pricing with subcontractors. In some cases, where there are product supply delays or uncertainty in turnaround times for consenting, we are being more cautious.''
Chief executive and owner of Tauranga-based The Mortgage Lab, Rupert Gough, said anecdotal evidence suggested the number of people applying for mortgages to build a new home had fallen although he had not seen it.
From the banks' view, they could not have unlimited additional costs but, on the other hand, builders were experiencing a 40 per cent per annum jump in costs and outrageous logistic expenses and issues.
The problem was inflation and more materials needed to be bought into builds.
''No one is winning in this economy.''
A Westpac spokeswoman said in the past six months less than 15 per cent of issued loans were for construction and the number has remained stable.
The number of fixed-price contracts has also remained fairly consistent.
''To ensure our customers are prepared for potential cost overruns we build in an additional cost estimate when they apply for construction lending.''
Kiwibank Retail Credit senior manager Matt Wayne-Bowles said the bank did not require fixed-price contracts where customer affordability was strong.
It was aware of the current pressures on the construction industry and the impacts on fixed-price contracts.
''As a responsible lender, we review each deal on a case-by-case basis to assess what clauses are in that contract and where appropriate we add in contingencies.
''The contingencies are about making sure there is additional money catered in the affordability assessment to cover for additional cost overruns as well as ensuring the customer has sufficient equity at the end of the build.''
Given the significant pipeline of construction, Kiwibank did not expect to see major falls in demand for home loans on new builds.
''We are more than happy to consider other contract types. In addition, new builds are exempt from loan-to-value ratio lending restrictions.''
An ANZ spokeswoman said it was also aware of the current pressure on the construction industry and the cost escalation that could occur as a result.
It still lends to customers building a home without a fixed price contract but, as was the case with all lending, the criteria differed depending on the contract type.
Unfixed contracts that could see costs escalate carried greater risk as they did not have the price certainty that a fixed price contract offers.
It had construction coaches to support people through the process to ensure the best outcome.
New Zealand Bankers' Association chief executive Roger Beaumont said banks considered loan applications on a case-by-case basis, taking into account a number of factors within the context of their lending policies and risk appetite.
''The quality of the security provided for the loan may be one factor in the mix, alongside other factors like the customer's ability to repay the loan.''