Activity remains subdued

Building cost inflation has slowed, returning to pre-pandemic levels as supply chain efficiencies improve and material costs decline amid weaker demand. Additionally, contractors are adjusting profit margins to secure limited project opportunities. Despite these factors, non-residential building consents have declined nationally, and capacity pressures in the sector continue to ease.

The RBA lowered the Official Cash Rate to 3.25 percent at its May 2025 policy meeting, aligning with market expectations and aiming to support economic activity amid subdued growth and declining inflation. While elevated construction costs continue to pose challenges, government reforms, infrastructure investments and lower borrowing costs offer stability.

Residential construction activity is being driven by demand for affordable housing, urban expansion, and sustainability-focused building practices. While overall residential activity has softened compared to prior years, certain segments are showing resilience.

Auckland is experiencing an increase in demand for office refurbishments, driven by changing workplace needs and modernisation efforts. In the education sector, several previously stalled school projects are being reactivated following a government review and the formation of a new management entity. Meanwhile, Kainga Ora’s housing build plan is undergoing significant adjustments due to financial constraints, resulting in the suspension of a substantial portion of planned developments.

While construction activity remains under pressure, key policy adjustments and targeted sectoral investments are expected to provide some stability and improve market conditions in the medium term. As the effects of easing interest rates filter through the economy, non-residential construction is anticipated to recover gradually, strengthening overall economic resilience.