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Construction Recovery Is Like in June, Economists Say
In another series of good news for construction companies, top New Zealand economists say that industry recovery is likely in the second half of 2025.
ASB economists state that the construction sector will likely remain subdued until June.
“Restrictive financial conditions and elevated building costs have weighed on home-building activity by both occupiers and developers in recent history,” said the ASB economists.
“Our view remains that the overall economy expanded in Q4, but some sectors will still be doing it tough, including construction.”
Rising construction activity is a sign of economic recovery
According to Westpac NZ, residential building consents increased by 2.6% in January compared with the prior month. This is a reversal from the decline of 5.6% in December.
According to Westpac, while there was a decline in residential building activities in December, the forecast is for these numbers to increase in the near future.
“In the residential sector, it looks like we are now close to a floor in the building cycle, with consent issuance having stabilised over the past year. In addition, with sharp falls in interest rates, we expect a lift in the housing market over the coming months, and that will encourage new housing development over time,”
“In the commercial sector, lower interest rates and firming economic activity will help to boost both investor appetites and development activity over time. However, we’re likely to see varied conditions across building segments for some time yet. Demand in the industrial / storage space is holding up, and we’re still seeing large amounts of office space in development,” highlights Westpac.
The report states that overall building sector recovery is expected to gradually recover in the middle of 2025.
Forces to watch in construction
The Westpac NZ report showed that residential consent numbers were down by -7.2% for the 12 months leading up to January 2025. This slightly improved from the previous year's decline of -9.8%.
Satish Ranchhod, senior economist at Westpac NZ, predicted that new building activity will likely continue gaining traction in the second half of the year.
"The real story here is the rates coming down, which is causing gains in housing and new development activity,"
"Financing costs have come down, and that will be supporting new builds over the next few years," he said to the New Zealand Adviser.
According to Ranchhod, New Zealand’s high construction costs have led to the reduced demand for building consents. However, building costs have stabilised in recent months.
"New Zealand saw a big increase in construction costs during the pandemic, as most countries did," he said.
QV CostBuilder claims that residential construction costs were up just 1.5% In the 12 months leading up to November 2024. This is a vast improvement compared to the double-digit numbers in 2021 and 2022.
John Moody, Chief Financial Officer at non-bank lender Basecorp NZ, says this is welcomed news for residents and businesses involved in the sector.
"Stabilising construction costs are clearly good for the overall industry … It's good for the development industry, as well, in terms of having greater visibility on what costs look like over the next 12-to-24-month period," he said.
However, economists agree that New Zealand's falling property prices may cause some developers to be wary of taking on new projects.
Indications are slightly more conflicted in the commercial space, where the retail and hospitality sectors continue to struggle. At the same time, many businesses demand the opening and renovating of office spaces to accommodate hybrid working.
"Feedback we’ve heard from businesses indicates that they remain cautious about significant new capital expenditure in the near term," said Ranchhod.
"However, we expect that spending on new premises and other investment activity will gradually rise over the coming year as economic activity recovers."
The story continues
The New Zealand economy will play a big part in stabilising the construction industry. Recent months have seen rising unemployment rates and higher costs of living. Yet, inflation
appears to be subsiding as the country's official cash rate (OCR) was reduced by 50 basis points earlier this month.
The Reserve Bank of New Zealand (RBNZ) also forecasted additional rate cuts throughout 2025, which raises questions about how this will affect the demand for construction. According to April Hastilow, a Christchurch-based mortgage adviser at Opes Mortgages - it depends.
"Some people are wanting a new build because it's a lower deposit. Some people are wanting a new build because they're easier to take care of. Other people are wanting land. Other people are wanting to be more central, which means maybe [buying] something existing."
Key takeaway
With promising data pointing to industry recovery, builders and construction companies can look forward to a positive second half of 2025. However, securing projects and assets remains critical as companies embark on new projects for the year.
Bonded NZ helps builders and contractors find the best insurance, warranties, and surety bonds that keep their best interests in mind. Whether it's a big or small project, our cost-effective options help them secure their projects at every angle.
For more information about our services, contact our team today.