Construction still in deep downturn, recovery predicted from next year - BNZ

Building costs and falling house prices continue to put pressure on the residential construction sector but a turnaround might not be far away.

BNZ economic data shows construction is still in the throes of a deep downturn with activity having fallen 14 percent since its peak in 2021.

Chief economist Mike Jones said low levels of new building consents and costs rising 30 to 40 percent in the last three years contributed to the downturn.

Now that interest rates have started to fall there could be improvements, he said.

"The factors that are still holding the sector back are firstly that construction cost inflation that's elevated and secondly the difference between the cost of building a new home to buying an existing home is still quite marked.

"It still looks cheaper generally speaking across the country to buy an existing home than build new so that is a factor that has to change before you start to the sector bottom out and improve. We see some of that gap narrowing towards the end of this year and into next year."

Jones said BNZ has pencilled in a recovery starting to occur for residential construction in early 2025.

House prices rising again should help, he said.

"We've built in an expectation that house prices rise six to seven percent next year. I think that is going to be the factor that will help narrow that gap between the cost of building a new home versus buying an existing home."