Winter Outlook in construction: Towards a spring of recovery?

Friday, 18 April 2025

Winter usually sees less building activity, but green shoots are emerging, says Julien Leys, who heads the organisation representing companies in the country’s building industry supply chain.

Julien Leys is the Chief Executive of the Building Industry Federation of New Zealand.

OPINION: As New Zealand braces for winter, traditionally a period of slower building activity, the construction sector also stands at a crossroads. A cornerstone of New Zealand’s economy, building and construction contributes 6.3% of GDP, but has faced turbulent times with the 2023 recession leading to a significant downturn in building consents and new house sales.

There’s been an easing in building material costs, for the first time in over a decade.

Yet, amidst these challenges, green shoots of recovery are emerging, fueled by a combination of the Reserve Bank of New Zealand’s (RBNZ) successive cuts to the official cash rate, stabilising building material costs, and the Government’s signposting of bold reforms to deliver more affordable homes.

The weight of the downturn

The last two years have been tough for the building and construction sector as the economic recession has impacted households and developers alike with a cost of living crisis. High inflation and rising interest rates dampened consumer demand, leading to a marked decline in residential construction activity. Building consents, a key indicator of future activity, peaked at 51,015 in May 2022 but have dropped to 33,632 in recent months. New house sales also slumped, and many consented projects stalled, as developers were reluctant to build in an uncertain market. Other indicators such as the building sector’s forward work pipeline have also shrunk, with only 26% of construction companies reporting more than six months of planned work in 2024, (compared to 40% in 2022). The high cost of building materials, which jumped 35-40% from 2020 to 2023, further eroded confidence in housing affordability, making new builds less financially attractive than buying existing homes.

Green shoots of recovery

It’s been another busy month of construction progress for One New Zealand Stadium at Te Kaha in Christchurch.

Yet, as winter approaches, there are signs of hope. The RBNZ’s long awaited interest rate cuts are restoring homeowner confidence, as evidenced by an increase in renovation inquiries and first-home buyers renewed interest in sales.

Equally promising is the easing in building material costs. For the first time in over a decade, the Cordell Construction Cost Index recorded a 1.1% drop in residential construction costs in Q2 2024, with annual growth slowing to a record-low 0.6%. Further, from July 2025, the Government’s plan to introduce 12,000 additional overseas-certified building products to the New Zealand market promises to further lower costs and improve supply chain resilience. By allowing materials from trusted overseas jurisdictions like Australia, EU and United States that already meet the requirements of our Building Act, it makes re-certification in New Zealand redundant and so will eventually reduce costs, improve supply chain resilience and make construction more affordable.

Government reforms: A catalyst for change

The coalition Government’s building reform and growth agenda is another reason to be optimistic. Among several new initiatives to reduce the cost of building, Minister of Building and Construction Chris Penk has made it a priority to streamline the building consent process, a long-standing bottleneck of costly delays. New regulations under the Building Act 2004, announced in May 2024, eliminate the need for new consents for minor product or design changes, which will also reduce delays and costs. Historically, and embarrassingly, the average home in New Zealand has taken 569 days to build which will be reduced significantly with a much faster processing of consents —these changes are a welcome relief by the building industry. Moreover the Government’s commitment to exempt small projects under $65,000 from the building levy and enforce council timeframes for consent applications is another pro-growth initiative which will stimulate building activity as we approach winter.

Julien Leys, CEO of the New Zealand Building Industry Federation, says signs point to better times in construction after winter.

A winter of hope, a spring of recovery?

While undoubtedly challenges remain such as labour shortages (anecdotally lots of builders and construction workers have moved overseas), it is not surprising that economic uncertainty continues to linger. This has not been helped by the Trump Administration’s foolhardy decision to plunge the world into a trade / tariff war. However, the combination of lower interest rates, prospect of more competitive building materials, and regulatory reforms does augur well for a potential turnaround. Moreover, we should not forget that the recent Infrastructure Summit has generated a lot of interest in a pipeline of work including the second Auckland Harbour crossing, foreign investment and public private partnerships.

Winter 2025 offers a critical reset for the building and construction sector to rebuild momentum. A key driver will be ongoing consumer and developer confidence so that decisions to invest in building activity will start to flow through by September. While Auckland’s dominance in construction will underpin the sector’s growth, the renewed signs of building activity in regions like Canterbury and Bay of Plenty will provide a diversified recovery that should benefit New Zealand overall.

The building and construction sector is undeniably more resilient and better prepared to weather and recover from downturns. With the right policies and economic tailwinds, this Winter could mark the turning point toward recovery but the means of making this possible will be a concerted and collective undertaking by everyone in the building and construction sector including homeowners to plan, prepare, and be ready to take advantage of the growth opportunities that lie ahead.