“The wider residential construction sector has been in a downturn for about two years now, with dwelling consents falling and actual workloads subsequently declining too,” he said.
Davidson said the industry had come off extreme highs recorded during Covid.
“Building activity remains solid when compared to previous cycles,” he said.
“Even so, it does look like there is capacity opening up, which has reduced the pressure on costs.”
The CCCI index recorded a drop in sub-contractor charge-out rates in the September quarter, alongside many plumbing materials such as PVC piping.
The cost of materials such as window hardware and kitchen joinery rose over the period.
Davidson said the industry is grappling with additional challenges.
Households remain financially cautious despite falling mortgage rates and the number of established property listings available for sale remains high, he said.
He pointed to the about 26,000 properties listed for sale currently in New Zealand, up from 23,000 at the same time last year and double the 13,000 that were available in 2021.
“With such an elevated stock of existing listings, there’s less incentive for buyers to consider new-build properties,” Davidson said.
“The shortening of the Brightline Test and the reinstatement of mortgage interest deductibility for all properties regardless of age has also lessened the appeal of new-builds.”
Davidson said though the outlook for the sector isn’t particularly buoyant in the short term, signs of life might just be starting to emerge.
He said the Reserve Bank’s newly introduced debt-to-income ratio restrictions, which exempt new builds, could help stimulate demand.
And further interest rate cuts and improvements in the labour market would also likely have a positive impact on construction activity into 2025.
“Developers may feel more confident to increase supply if these changes, combined with falling mortgage rates, create a relative shift in demand towards new builds over the next 12 to 18 months,” Davidson said.
“This could lead to a resurgence in New Zealand’s construction sector, with agents and developers watching closely for any signs of a turnaround in 2025.”
According to Stats NZ, 33,632 new dwellings were consented in the year to August 2024, down 20% compared with a year ago.
For the month, 2881 new dwellings were consented, 5.3% lower than in July.
Kelly Eckhold, Westpac chief economist, said inflation had been stubbornly high in the sector.
“It’s always the sectors that have less competition.”
Eckhold said a few big players supplied most of the country’s construction materials.
“This has been an area that has frustrated people.”
He said the construction sector was in a cyclical trough right now.
“There are a lot of indicators that the construction sector is well and truly on its arse, but the cost of building a house is not falling.”
The CCCI report measures the rate of change of construction costs within the residential market for a standard single-storey, three-bedroom, two-bathroom brick-and-tile dwelling.
Cameron Smith is an Auckland-based journalist with the Herald business team. He joined the Herald in 2015 and has covered business and sports. He reports on topics including retail, small business, the workplace and macroeconomics.
Additional reporting by John Weekes.
