Is it the dark before the dawn for construction?

Tuesday, 3 June 2025

Construction companies now make up nearly a third of all business liquidations, and the sector’s downturn still has some way to go, experts say.

The industry has been struggling through a prolonged downturn, and that has led to a decline in new startups and an increase in liquidations, according to the Building Research Association of New Zealand (Branz).

Its latest industry data shows construction business liquidations were up 37% in the year to February, and made up 31% of all business liquidations.

The trend was also evident in recent data from credit reporting company Centrix, which said construction companies had been particularly affected by ongoing financial pressures.

Centrix reported that 728 construction companies went into liquidation in the year to March, with new home builders and property developers among the business types with the highest number of company failures.

But the Branz report also said that despite the economic downturn, the long-term outlook for the construction sector remained positive. So is there an end in sight to the downturn?

Infometrics chief forecaster Gareth Kiernan said that across the industry a lot of construction businesses, in both the residential and the commercial space, were under pressure.

While residential consents have stabilised, the level of activity coming through was down from the Covid-era peak, and there was a delay between consent issuance and the work being done.

“I’ve heard reports of businesses pricing work at a level where they are not going to make money. It’s to try and keep people in work as long as possible, but it is not a sustainable position to work from.”

In late 2024 and the early months of this year, there was a bit of an upswing in optimism, with the residential sector stabilising and some more demand, Kiernan said.

“But that optimism has evaporated again, and the pressure on the sector remains. Interest rate cuts have not had much effect on construction activity, and only limited effect on the housing market.

“There’s some limited momentum in the housing market, but it will probably be about six to nine months before it will translate into more construction activity.”

Migration numbers had dropped back, and the undersupply of stock was no longer as critical as it had been, so he was sceptical about the optimism around a pick up in the short-term.

Building Industry Federation chief executive Julien Leys said the number of liquidations in the sector was consistent with the pattern seen during the downturn.

But the liquidation data did tend to be a mirror into the industry six months ago rather than today, he said.

“It also reflects the impact of work shifts and project delays on smaller businesses and contractors who don’t have great cashflow, and often work on a job by job basis.

“They tend to rely on progress payments during developments, so if anything changes or stops on a project, it can tip them over because they don’t have the reserves, or access to credit to carry them through.”

Larger businesses which worked multiple jobs tended to have better systems in place, accounts people, and long-term relationships with banks which made finance more accessible, he said.

“But we can see some green shoots coming through in the data we get, such as increases in the volumes of concrete and steel going on, and the volume of trade going through merchants.

“That tells us activity is starting to pick up, but winter is often tough in this sector because of weather impacts, so we don’t think we’ll see improvements really kick in until spring, so from about September.”

Leys said the latest OCR cut and the likelihood of another one, along with the Government's investment boost would help, as lower costs meant more people would decide to crack on with it.

“But even if new build decisions are made now, the earthworks for them aren’t likely to start till September/October, so the work may be coming, but there is a lag.

“Unfortunately, over the next few months we are likely to continue to see more businesses going into liquidation.”

Meanwhile, Stats NZ has released its latest building consent data, and it showed new home consents dropped 16% in April, while the number of consents over the year to April was down 5.2% on a year earlier.

Westpac senior economist Satish Ranchhod said the 12-month rolling total of consent numbers was the better gauge of where the home building sector was heading.

Looking at those numbers, there were signs that the downturn in construction activity was flattening off, with consent issuance running at the 34,000 annual level for a year now, he said.

“Notably, the earlier downturns in both stand alone homes and town houses have been arrested. We expect consent issuance will remain around current levels over the next few months. “

But the seeds of an eventual recovery were in place, with financing costs down sharply over the past year, home sales back around average levels and house price growth gradually picking up, Ranchhod said.

“Those conditions are likely to support a lift in the number of new developments consented through the latter part of this year, with a lift in building activity to follow that.

“Even so, the recovery in construction activity is likely to be gradual, and the large increase in the housing stock over the past few years will moderate how much additional new housing will be needed.”