The New Zealand construction market remained relatively unchanged over the second quarter of 2024. Cooler market conditions, driven by restrictive policy settings and a weaker economy, have slowed new investment into the sector.

Despite continued strong arrival numbers, net migration slowed over the June quarter due to an increase in departures. Higher outflows against a weaker economic outlook have cooled construction investment from the private sector. However, the recent cut to the official cash rate is the first step in the right direction to reignite confidence and drive new intentions. We expect to see further rate cuts in the coming months, which will further support private-sector activity.

Since the change in government, numerous projects have been placed on hold pending value-for-money assessments, particularly in the education sector. Out of 352 school projects reviewed, 100 were halted and 110 are proceeding with modifications. While these reviews are expected to yield a saving of NZ$2bn from the original NZ$4.6bn budget, they are reducing the public project pipeline and are contributing to cooler market conditions in the near term.

However, the new government aims to significantly increase public housing supply as part of its Updated Public Housing Plan, which prioritises the regions as opposed to metropolitan areas. The shift towards achieving 100 percent renewable electricity generation by 2030 and reaching net-zero emissions by 2050 should also drive major investment in the energy and utilities sectors. With further rate cuts expected in the coming months, private sector investment activity should start to gradually improve.

Positive signs of recovery are emerging from the labour supply issues that impacted 2023, as demand across the sector eases. While shortages persist for specialised trades such as electrician technicians and installers, high levels of overseas arrivals should help to lessen these gaps over the medium term.

Building material costs have stabilised as supply chain pressures ease, reducing the likelihood of significant construction cost inflation in the near term. However, global supply chains remain vulnerable to rising geopolitical tensions, with global freight rates beginning to increase, which could pose further risks to the cost of imported building materials for New Zealand.