NZ Construction Sector Sees Tepid Growth Despite Rising Costs

The construction sector in New Zealand has been making strides, contributing significantly to the country's economic growth. In the second quarter of this year, residential construction volumes experienced a 4.4% quarterly increase, the best since 2021.

However, experts from BNZ are cautious about the sustainability of this trend, citing several factors that may hinder further growth. One major concern is the rising costs of construction materials due to global fuel and petrochemical prices. This, combined with a flat house price market and increasing interest rates, makes the economics of building challenging.

Despite these challenges, there are still reasons to be optimistic about the sector's prospects. Building consents have been on the rise, with residential permits lodged in the year to August being 21% higher than a year ago. Surveyed confidence readings from the construction industry also lean towards optimism, with a net 56% of respondents expecting output in their business to increase over the coming 12 months.

BNZ's forecasts suggest that while there may be an uptrend in residential building activity, it is likely to be tepid. The company's predictions are weaker than those of the Reserve Bank (RBNZ), which has lifted the OCR twice this year to 2.75% and expects further increases.