New Zealand’s construction sector shows early signs of stabilisation after a prolonged downturn.
Date: 06 June 2025
Recent data from the first quarter of 2025 suggests that the steep decline in building activity may be levelling off. While not yet a full recovery, this plateau could indicate the beginning of a more stable phase for the industry. Analysts are cautiously optimistic, noting that while challenges remain, the worst of the contraction may be over.
Residential recovery begins to stir
A report from Westpac IQ reveals that total construction activity in New Zealand remained flat in the March quarter, outperforming expectations for a slight decline. Within this stability, residential building work increased by 2.6%, marking its first quarterly rise since September 2022, which is a positive sign for the sector that has been contracting from the highs of 2021 and 2022. However, ASB Economics & Research warns that residential activity is still about 25% lower than its peak in 2022, indicating a challenging recovery ahead. Despite some stabilization, with consistent consent issuance, a more significant turnaround is expected later in the year, driven by recent interest rate cuts and a gradual recovery in the housing market.
Non-residential weakness deepens
Non-residential building activity in New Zealand fell by 3.9% in the first quarter, continuing a downward trend due to reduced public sector projects and weak economic conditions. Businesses are scaling back on capital expenditures, hampering new commercial space development, and high costs are affecting larger projects. Westpac IQ's economist Satish Ranchhod expects continued weakness in this sector through mid-year.
The construction sector's recovery relies on lower interest rates to ease financing costs and stimulate demand. While stabilized building material prices could help, elevated real-term costs remain a significant barrier to growth, according to ASB Economics & Research economists.