NZ building activity falls again as construction sector lags recovery

New Zealand’s total building activity declined 1.8% in the second quarter of 2025, according to ASB economist Wesley Tanuvasa (pictured). 

“Large falls in the more interest-rate sensitive residential building sector (down 2.9% in Q2) weighed on the Q2 figures as the construction sector continues to retrace from stimulus-driven highs over 2021/22,” Tanuvasa said.

Despite the Reserve Bank’s 250bp in official cash rate cuts since August 2024, bringing the OCR to 3%, “the sector has taken longer than assumed to stabilise.”

Tanuvasa attributed this to “a variety of headwinds, including easing net immigration, economic uncertainty, elevated build costs, and longer lags to monetary policy flowthrough.”

Meanwhile, ongoing declines in property values and buyer caution – driven by high housing supply and job insecurity – continue to dampen demand for new residential construction.

Non-residential construction also soft

Non-residential building activity slipped 0.4% in Q2. 

“In general, it is harder to take signal from this segment given the idiosyncratic timing of larger scale building activity and publicly funded projects being relatively less sensitive to interest rates,” Tanuvasa said. 

Government fiscal tightening may be impacting activity, but the effect is difficult to disentangle.

Outlook: Stabilisation hinges on housing market momentum

Overall, ASB estimates Q2 construction GDP declined 1.5%, while production GDP is expected to grow just 0.1%. 

“A lower OCR should support stabilisation in construction sector activity from late 2025/early 2026, with a faster turnaround contingent on the housing market gaining further momentum,” Tanuvasa said.

“Picking a sectoral turning point is hard. We remain of the view that the construction sector is retracing from stimulus-driven highs over 2021/22, but it would be remiss to ignore that it has taken longer than assumed for the construction sector to stabilise.”

While consents flow has remained stable and the medium-term pipeline looks robust, “it’s just about getting some momentum.” 

Tanuvasa cautioned that “there remain headwinds that can dampen the effectiveness of monetary policy stimulus, which seems to be one of the few key tailwinds of late.”

Read the full ASB report here.

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