Iran war: Middle East war a drag on NZ construction sector outlook
Monday, 11 May 2026
Auckland-based building company owner Stuart Shutt remembers how the Global Financial Crisis affected construction all too well, but says the sector’s current downturn is harder because it has gone on for much longer.
Shutt’s company, Sentinel Homes, was relatively new when the GFC hit New Zealand back in 2008, but his business had been building well.
“Then commentators started saying house prices were going to drop by 10%, and my phone stopped ringing overnight,” he said.
“I had to retrench, so I took my office back home and worked out of my bedroom for 18 months, and got through it. It was hard, but it finished relatively quickly. Whereas this downturn just keeps dragging on.”
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At the start of this year he was starting to see things picking up.
“Interest rates were down, confidence was up, phones were ringing - and then the war [in the Middle East] started.”
Now there was a lot of worry about costs, consumer confidence had been dented, and it was weighing on the sector, Shutt said.
The conflict-driven fuel crisis has been a huge knock for a sector already struggling to recover from a prolonged downturn, and the longer the conflict lasts the bigger the impact will be.
That’s because not only is the sector heavily reliant on transportation and freight, but a high proportion of oil-related or dependent products, such as aluminium, plastics, bitumen and resin, are used in the sector.
Building Industry Federation chief executive Julien Leys said manufacturers and suppliers had to give three months’ notice for price increases, so the first of those increases were just coming through now.
Fuel costs were different though, and higher fuel costs were already being loaded into prices - for freight, for example - as they did not have to be justified as much, he said.
“It’s compounded by the uncertainty, with people waiting to make decisions on projects, and it’s rippling through the entire industry and slowing everything down.”
Construction was off to a good start in January and February, and the long-awaited recovery seemed to be getting under way - until the war began.
While the latest consents data showed an increase, it was hard to say what the outlook for the sector was now, Leys said.
“The consent data is historical and doesn’t show what is happening in the market now. Demand has dropped away, so we have to hope the Strait of Hormuz opens, and commerce and trade start flowing again.”
Stats NZ’s latest figures showed there were a total of 37,813 new homes consented nationwide in the year to March, up 11% on the same time last year.
There was a 9.2% increase in consents for stand-alone houses, and a 13% increase in consents for multi-unit homes - which includes townhouses, apartments, flats and retirement village units.
Westpac senior economist Satish Ranchhod said the past few months had seen consent issuance taking a step higher, and March’s annual total was at the highest level since 2023.
“With a lift in consent numbers over the past year, we expect building activity will trend higher over the next few months. However, there is a bigger question about the outlook for building as we head into the latter part of the year.”
The Middle East conflict had resulted in a rise in fuel costs, and materials costs, and there had been a lift in uncertainty and upward pressure on borrowing costs as inflation pressures had risen, he said.
Recent business surveys had shown a drop in business confidence and a winding back of plans for capital expenditure.
“That’s likely to put a dampener on the amount of new non-residential projects over the coming year.”
Meanwhile, a swag of recently released data reveals the sector is struggling.
Construction remains the leading industry for company liquidations, with 768 firms liquidated in the year to March, according to the latest figures from credit reporting company Centrix.
Many of the companies going into liquidation are smaller businesses, but last week a large civil construction firm, KMJB Harris, went into liquidation owing creditors nearly $6 million.
It joined another big industry player, Teak Construction, which owed close to $8m when it was put into liquidation in March.
The latest Rider Levett Bucknall crane index showed the national crane count fell to 102 long-term cranes in the first quarter of the year, from 116 in the third quarter of 2025. The decline left the index at the lowest level since 2016.
And residential building costs increased by 1.0% in the three months to March, according to the latest Cordell Construction Cost Index.
It also showed the annual pace of growth accelerated to 3.0% from 2.3% in the December quarter. It was the fastest increase in over two years, although still below the long-term average of 4%.
The index, based on a combination of material, labour, plant hire, and subcontractor costs, measures the change in the cost of building, but does not provide the actual costs.
Cotality chief property economist Kelvin Davidson said relatively modest increases could impact borrowing requirements or project feasibility, particularly at a time of broader cost-of-living pressures.
The Middle East conflict and higher fuel prices, was beginning to filter into the supply chain, with some suppliers signalling potential price increases, he said.
For the construction industry, it would be a challenging period as firms adjusted to higher fuel prices just as activity was starting to recover, he said.