Skills shortage, policy uncertainty eclipse downturn as construction's biggest threat
Tuesday, 21 July 2026
Labour shortages and inconsistent government policy have emerged as the construction industry's biggest concerns, with a building industry association saying those worries now pose a greater threat than the economic downturn.
Construction activity is at its lowest level since 2019 after contracting by 15% since 2024 but the New Zealand Chinese Building Industry Association says in its latest annual report that this is not greatest challenge for the industry.
The association’s president, Frank Xu, said the ability to develop, retain and support the skilled workforce that would be required when activity increases was the industry’s greatest challenge.
'The next construction boom will not be constrained by projects, it will be constrained by skilled people.“
Read more:
NZ building relief: Diesel price drop flattens spiking construction costs
Why construction is one of the industries hit first and hardest in a fuel crisis
The report, which was launched at an event at Parliament on Tuesday, found that construction remained one of the largest economic sectors, generating about $92 billion in annual revenue.
The industry directly employed almost 300,000 people, and supported a further 250,000 jobs across related sectors such as engineering, it also found.
But nearly 75,000 workers had left the construction sector during the year to May, while about 95% of recruitment replaced workers who had exited, rather than increasing overall capacity.
“Apprenticeship commencements have also declined since their 2022 peak, while five-year completion rates have fallen to 43% from about 58%, raising concerns about future workforce supply,” said Xu.
The report estimated improving apprentice retention could increase the lifetime return to a business from about $4000 to almost $94,000 per apprentice.
Xu said workforce development should be viewed as a long-term investment rather than simply a cost.
“Businesses that continue investing in apprentices, leadership and staff retention during the downturn will be best positioned when activity accelerates again.'
But there was also a loss of skilled workers with every cyclical downturn in construction, and if government policy could be implemented to help in the downturns that would be helpful, he said.
“For example, if there was a tool to indicate when things were starting to look bad, the government could intervene with more investment in government-driven infrastructure projects at those times, and then it could pull back when things got hot again.
“If that could be done it would help the industry to retain skilled workers and better manage workforce capacity and capability.”
For report author Shamubeel Eaqub, alongside workforce capability, fragmented policy settings were a major barrier to industry confidence - and productivity.
Construction businesses operated within 98 policy instruments, administered across seven government agencies and spanning 13 separate policy areas, the report found.
Eaqub said while many individual reforms were positive, inconsistent implementation and limited coordination increased compliance costs and discouraged long-term investment.
Certainty was becoming just as important as reform itself as stable, co-ordinated policy settings allowed businesses to invest, employ and plan with greater confidence, he said.
“This fragmentation and changeability are two things that are really adding to the productivity loss, the uncertainty, and the variability of the sector. They’re a real risk.”
It did not mean things could not be changed, but when changes were made they had to be considered and long-term, and informed by better information and evidence, he said.
But Eaqub and Lee both believed the long-term outlook for the sector was positive, and that its underlying fundamentals remained strong despite the current downturn.
“Construction will remain central to the country's long-term economic growth, but from a recovery perspective, while there seems to be some momentum there's still some risks,” Eaqub said.
“What happens with Iran and with interest rates are the two biggest uncertainties for me.”