New Zealand is currently navigating a period of considerable uncertainty within the construction sector. Price inflation, labour shortages and credit constraints are exerting significant influence on the construction market in New Zealand. Construction activity is slowing due to the housing market’s responsiveness to changes in mortgage rates.

Despite generally low confidence in the economy, we anticipate growth in the construction market to be driven by the pipeline of activities already in progress. Major projects currently underway in Auckland and Christchurch are expected to sustain pressure on resources and labour demand.

Notable efforts aimed at mitigating the effects of inflation and high interest rates on private investments have not been successful as private investments in construction have mostly declined. With no anticipated major changes in private sector investment, construction is likely to continue slowing down as ongoing projects in the pipeline reach completion. The data centre market is expected to support activity levels as the sector experiences significant growth, with substantial support from local governments and attraction of major service providers worldwide.

Despite relaxation of border rules, which has led to a significant increase in net inward migration, labour and skills shortages persist, although some improvement is now materialising. There are still some skills in high demand and short in supply, leading to an imbalance. This is expected to continue contributing to higher construction cost escalation over the next 12 months. Imported inflation is also keeping some upwards pressure on building material costs, however, a notable improvement has been observed for many materials, which is helping to slow price growth.