New Zealand’s construction sector is showing early but promising signs of recovery, supported by falling interest rates and a significant infrastructure pipeline, according to Rider Levett Bucknall’s Forecast Report 114, prepared by the New Zealand Institute of Economic Research exclusively for RLB.
While the recovery remains uneven across sectors, residential construction is leading the initial uplift following a prolonged slowdown.
Grant Watkins, Director at RLB New Zealand, said the medium-term outlook is generally positive.
“The outlook for the coming years is underpinned by monetary policy easing, population growth and a substantial pipeline of infrastructure investment.”
Residential construction leads early recovery
Statistics New Zealand data show construction activity increased slightly in the September 2025 quarter, reversing some of the declines seen earlier in the year. Residential construction rose by 2.8 per cent over the quarter, while non-residential activity declined by 1.3 per cent.
Forecast 114 highlights a cautious recovery in residential demand, with dwelling consents issued in the year to October 2025 rising by 6 per cent to just over 35,500. Growth has been strongest in medium and high-density housing, including apartments and townhouses, reflecting affordability pressures, planning reforms and improving developer confidence.
Auckland has led this recovery, supported by population growth and improving housing market conditions. Canterbury is also showing renewed momentum, while Wellington has recorded more modest gains.
Non-residential activity remains subdued
Despite improvements in residential construction, non-residential demand remains weak across much of the country.
Annual non-residential building consent issuance remains below year-ago levels, reflecting continued caution among businesses regarding investment in buildings. Weakness has been most evident in healthcare, social buildings and retail construction.
Auckland and Otago have experienced notable declines in non-residential activity, while Wellington and Manawatū-Whanganui have recorded increases driven by healthcare, industrial, office and storage-related projects.
Infrastructure pipeline provides long-term support
New Zealand’s infrastructure pipeline continues to provide vital long-term support for the construction sector. Te Waihanga, the New Zealand Infrastructure Commission, reported the total value of infrastructure projects reached $275 billion in the September 2025 quarter.
Of this, $181 billion of projects have full or partial funding in place, while $94 billion remains unfunded. Transport and water infrastructure dominate the pipeline, supported by Roads of National Significance initiatives and planned investment in water infrastructure.
These projects are expected to provide a steady pipeline of work as private sector investment remains cautious.
Interest rate easing to support recovery
The broader economic environment remains challenging, with GDP contracting by 0.9 per cent in the June 2025 quarter. However, monetary policy easing is expected to support improving conditions.
Since August 2024, the Reserve Bank of New Zealand has cut the Official Cash Rate from 5.5 per cent to 2.25 per cent. RLB expects this to mark the trough of the current easing cycle, with the lagged effects supporting stronger construction activity over the coming year.
Construction cost outlook
Forecast 114 indicates construction cost inflation will remain subdued in the near term due to spare capacity in the sector.
Non-residential construction cost inflation is expected to stabilise through early 2026 before rising from the second half of the year. As demand strengthens and capacity tightens, RLB forecasts annual non-residential construction cost inflation to reach around 1.6 per cent by the end of 2026 and exceed 3 per cent by 2029.
“As conditions stabilise and demand recovers, confidence, profitability and construction activity are expected to improve gradually across the sector.”
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