The hard bite of a deep construction downturn

Tuesday, 5 August 2025

At Steam and Sand in Porirua, Holly Harding has made the upsetting decision to let five staff go. She says the construction downturn is severe, and despite talk of 'hope' from the Government, little work is coming through the door.

ANALYSIS: Politicians are fond of a business visit. It’s a staple of the public relations playbook: find a favourable business, insert politician, broadcast images to the public.

The morning after Finance Minister Nicola Willis delivered her Budget, she arrived at the “awesome business” Fraser Engineering in Lower Hutt, a firm which manufacturers firetrucks and could benefit from the Budget’s $6.6 billion tax break for businesses which invested in new assets.

But The Post undertook a different kind of business visit last week, which threw up an expected connection to that post-Budget event.

While interviewing Holly Harding at Steam and Sand, who made the upsetting decision last month to lay off five employees due to the construction downturn, Harding cycled through images of work her sandblasting firm had completed or were under way.

Among them was the chassis of a Fraser Engineering fire truck.

At Steam and Sand, a decades-old steel sand-blasting and painting business in Porirua, five staff were let go last month due to a lack of work.

While Fraser Engineering was celebrated by the Government when touting its Budget, the response to concerns raised by the likes of Steam and Sand -- a call for Government investment to help the construction sector through -- has been muted.

The Government has denied it has played a role in the construction sector’s current difficulty, instead blaming broader economic conditions, in particular high interest rates.

But across the sector, there’s a clear verdict: withdrawing from projects, halting building programmes to control costs, and certain reforms over the past 18 months have deepened the downturn.

The blame game

More than 12,000 job losses in construction in the year to June 2025. More than 1100 construction companies liquidated in the two years to June 2025. “Tanking” economic activity expectations for residential construction and construction in a “renewed slump”, according to ANZ.

There’s two sides to the political debate over how this has happened. The Government says it’s the result of Labour’s poor economic management and high interest rates; the Opposition says the cancelling of projects have sent workers overseas.

Infrastructure Minister Chris Bishop on Q+A this past weekend said it was “my contention that it’s the broader economy and the macro-economic conditions that have led to a slowdown in construction”.

“We have made decisions to try and bolster the infrastructure pipeline … cancelling the Auckland light rail has not led to a single person who works in actually building projects losing their job.”

Infrastructure and Transport Minister Chris Bishop.

He said Labour’s iRex Cook Strait ferry programme, which the Government cancelled in 2023, was “the same”.

But Labour Party jobs and incomes spokesperson Ginny Andersen said big projects had been cancelled that companies were relying on for a pipeline of work -- such as school builds and iRex.

“There was a signed contract in place with the ferries … and there were workers in place in Wellington already, with contracts signed.

“Cancelling a signed contract creates huge uncertainty within the construction sector.

“It was the stop-start approach that really cost people their jobs and has pushed people overseas to find work.”

Lay-offs and liquidations

While economic uncertainty has stymied the construction sector, there is certainty about how this point was arrived at.

Malcolm Fleming, chief executive of New Zealand Certified Builders, said the market was “really patchy” and tough for his organisation’s 3000 members, of which 2300 were mainly small-to-medium residential builders.

A house being built in Hamilton in 2023.

“The main catalyst behind all this is severely reducing the pipeline of work coming out of central Government.

“The best thing that the Government can do now is start opening up that pipeline of work again and signalling that it's on its way, and it needs to arrive pretty smartly, because [of] the devastation to the industry.”

He said smaller residential builders have been somewhat insulated because they could pivot away from the likes of new home building, which has “fallen away quite dramatically”, towards other work.

The Kāinga Ora building programme had provided an “anchor” for the industry’s supply chain of designers, engineers, quantity surveyors, he said.

Smaller building companies were now competing with the biggest firms, which no longer had Kāinga Ora or Ministry of Education work, Fleming said.

“They had a forward pipeline of work that they could rely on … that then pulled back as a volume of work about 18 months ago, [and] has had a massive impact on this industry.”

Infrastructure NZ chief executive Nick Leggett, whose organisation will hold its Building Nations conference in Wellington this week, said the primary reason for the downturn was the “crippling economic slowdown”.

But the new Government pausing or cancelling many projects in the infrastructure pipeline “has not helped confidence in the industry either”.

Civil Contractors NZ chief executive Alan Pollard said the industry was now in the midst of another restructuring and good people were being lost.

“The challenge for us is that there is a gap in project work now, and you know, we have a number of our members, literally, with nothing on their books to do at all at the moment.”

Pollard said he did not “subscribe” to the idea the industry suffers boom and bust cycles.

There was a “definite pause” in work after the Coalition Government was elected, and uncertainty about water infrastructure reforms made for a “reconsideration” at the local government level about projects.

“Towards late 2023 we were really busy, looking good. First quarter 2024 literally fell off a cliff.”

A turnaround could be 12 months away, he said.

Replaying the past 18 months

Was curbing construction spending needed? Again, there is a debate.

The Picton ferry terminal, where work will again be under way for a ferry replacement project.

Infometrics chief executive Brad Olsen said the sector was “right-sizing” after a boom in government infrastructure and residential house building during the pandemic period.

There was a “cautionary tale” in Labour’s Kāinga Ora building programme, he said.

“Government spent a lot of its sort of normal construction money on over inflated land and construction that the private sector was going to do anyway,” he said.

“It meant that you come through to now downturn in the construction market … that's when the public sector normally steps in.

“But public sector has already spent all its money in the good times, so it's got no money to spend in the more tough times at the moment.”

Council of Trade Unions economist Craig Renney, who worked for Labour finance and infrastructure minister Grant Robertson, said different decisions could have been made.

“Giving away money via tax cuts or spending money in on construction projects so that we're helping to close our infrastructure gap? That's a really easy problem to solve.

“There was definitely scope to manage the change better, because it's not just Kāinga Ora, we also saw a complete stop being brought to the school rebuild program … that was in communities right up and down the country.”

Workforce will be needed

Ministers Erica Stanford and Chris Bishop visit Niche Modular Construction in Petone, where they are building pre-fabricated classrooms en-masse.

The jobs have been lost, the companies have folded. The next problem for the sector will be its workforce, when the work returns.

Pollard, of Civil Contractors NZ, said this was his message to the Government:

“Now is bad enough in itself, but … when all this project work does start to flow, and it's going to, there's no doubt … it'll flow at scale and it'll flow at pace and I have no idea how we're going to deliver the projects.”

He said the Government had done some good work on visas, he said. But education pathways were needed -- and further reform of vocational education had him concerned.

“The bulk of the focus is going on restoring the polytech sector and not actually giving sufficient credibility to the workplace learning sector.

“Te Pukenga definitely was a giant that needed to be sorted out … that was easily solved without having to go through a whole reform process.”

Fleming said there had been “massive swings” in vocational education policy from Labour to National, and “in the meantime, the needs of the learners and the employers is in abeyance”.

“We need certainty in some of these big building blocks for the economy, not just construction.”

Beyond this, there is positivity about the Government’s work to create a national infrastructure plan and a “pipeline” for future work, as many look for political bipartisanship on infrastructure.

Fleming, of Certified Builders, said this was needed for both projects and education, so capacity does not pack up and leave the country.

Pollard said the Government deserved credit for doing all it could to forge a long-term bipartisan approach to infrastructure, which was “positive stuff” for civil contractors.

Infrastructure NZ’s Leggett said to avoid the “political lurches” required not only bipartisanship, but for the public not to reward the cancellation of properly costed projects.

“We’ve become a nation that celebrates cancellations and that has to change.”

Clarification: Brad Olsen’s comments about a “cautionary tale” were in regard to Labour’s Kāinga Ora building programme. (Tuesday, August 5, 2025, at 8:11am)