Residential and non-residential construction stall

Construction was among the sectors experiencing a sharp decline in the latest GDP report. Activity continued its prolonged downturn, falling by 1.8 percent over the quarter, as the pipeline of previously consented work continued to thin. While non-residential building consents rose slightly to NZ$9 billion in the year to July 2025, this modest 0.8 percent increase was largely offset by rising construction costs, with prices up 1.6 percent over the same period.

Although higher prices have supported the nominal value of building consents, actual volumes are declining across several key sectors. Health-related non-residential consents fell sharply from NZ$1.7bn in 2023 to NZ$948m in 2025. Education and social buildings also trended downward, signalling a broader pullback in public sector investment.

Residential development remains subdued, with new dwelling consents flat since early 2024 and recent declines in housing prices dampening investor appetite. Labour market recovery is progressing slowly, aided by migration policies and apprenticeship programmes, but skilled shortages and retention challenges persist, particularly in regional areas. Demand for experienced tradespeople, such as carpenters, electricians, plumbers and project managers, continue to outpace supply.

Looking ahead, infrastructure investment is expected to stay strong, driven by increasing demand for transport and utility projects as the government seeks to demonstrate delivery ahead of the Q4 2026 election. Fast track consenting initiatives may emerge in 2026, pending public response and regulatory clarity.

In response to the weaker than expected economic performance, the Reserve Bank of New Zealand delivered a surprise 50 basis point rate cut in October 2025, lowering the Official Cash Rate to 2.5 percent. This marks a significant shift toward more accommodative monetary policy, aimed at stimulating investment and supporting recovery. While the move is expected to provide some relief to the construction sector, particularly residential, it may take time for the effects to flow through, given ongoing cost pressures and cautious market sentiment.