Residential activity shows early signs of recovery

Construction output recorded a rebound in the latest New Zealand GDP data, rising by 1.7% over the quarter. Although the sector is still in negative territory on an annual basis, the recent improvement suggests conditions may be stabilising. Recovery varied across segments, with residential activity showing the strongest prospects. Total building volume (seasonally adjusted) rose 1.5%, driven by a 2.8% increase in residential building, while non-residential building continued to decline by 1.3%. Regionally, this uptick in activity was concentrated in Auckland.

Despite these gains, building consent data indicates that a substantial near-term uplift is unlikely. Residential consents show early signs of recovery, with trend data for new dwellings improving after bottoming out in late 2024. In contrast, non-residential consents remain weak, falling 4.7% to NZ$8.9bn in the year to October 2025.

Education buildings recorded the largest increase in consents, likely reflecting the conclusion of reviews and the restart of projects during the period. Industrial buildings, including storage and factory facilities, also saw growth compared to last year. However, health-related consents dropped sharply, and retail consents remain subdued amid broader economic conditions that are affecting consumer spending. ‌

Supply chain recovery is partial, with improved material availability and stabilised shipping costs, although pricing volatility and regional disparities continue to present challenges. The labour market is gradually improving, supported by migration policies and apprenticeship programmes, but skilled shortages and workforce retention issues remain a concern, particularly in regional areas. Demand for experienced tradespeople such as carpenters, electricians, plumbers and project managers continues to exceed supply.

Looking ahead, demand for transport and utility projects is expected to rise as the government prepares to demonstrate delivery ahead of the Q4 2026 election. Fast-track consenting projects may surface in 2026, pending public response. Interest rates are likely to bottom out following recent aggressive cuts, and the effects should gradually flow through the economy, particularly benefiting the private sector.