Construction has struggled to tread water in the face of enormous cost rises from supply chain bottlenecks and labour shortages, falling house prices and a steep run-up in interest rates, ANZ’s Property Focus shows.

Building consents around New Zealand have unwound their Covid-era surge and are now below their pre-pandemic level.

Easing supply constraints have not been enough to offset weakening demand, even for townhouses and apartments. Policy uncertainty around how the government will amend the Medium Density Residential Standards (MDRS) is also encouraging some developers to hold off progressing construction for some of these larger housing complexes, the report says.

The construction bust can’t carry on forever, Sharon Zollner, ANZ chief economist says. The clock is ticking to house the nearly 130,000 new net migrants that are estimated to have come to New Zealand in the past year.

Building continued while the borders were shut during the pandemic, which eased housing shortages compared to pre-pandemic, but Zollner says the housing supply is now being eaten into at a rapid clip. However, she says weak building activity is unlikely to be sustainable long term, given far fewer homes are being built than are required to support record population growth.

Bust Now A Coming Boom

Even if consents don’t recover in a hurry, there’s now a pipeline of unfinished – or unstarted – projects that can be completed without waiting for the planning and consenting process.

Zollner says as some of these projects become more viable, new or existing owners are likely to begin construction work on pre-existing consents, which could result in quicker rebound than consent issuance itself would suggest is likely.

Construction is also likely to be buoyed by plummeting construction cost inflation, which is making it easier to make the maths work.

Construction experienced some of the most extreme inflation of any part of the CPI over the past two years as the house price bubble combined with acute materials, such as GIB, shortages and severe shortages of skilled tradies.

“We expect some unwind as these acute shortages ease, which will make it more affordable to build new homes, particularly with a 23 per cent increase in the construction workforce over the past year,” Zollner says. “It’s entirely possible a strong recovery in building activity is underway.”