Will residential construction return to sustainable levels?

by | Mar 6, 2024

A new report has predicted a slowdown from the post-COVID-19 peak in the amount of residential building work to December 2028 as supply and demand evens out.

The Ministry of Building, Innovation and Employment’s (MBIE) National Construction Pipeline Report 2023 reported building demand has cooled since record building consents were issued in 2022, and therefore anticipates a more sustainable level of work for residential builders across New Zealand.

“The overall activity forecast is positive, short-term reductions across various measures in the report suggest activity fluctuations in the sector are being less affected by COVID-19 and returning to a more usual pattern,” said Micheal Warren, Manager System Strategy and Performance at the MBIE.

“Residential building activity is forecast to return to levels that align with the sector’s capacity to deliver buildings ready for occupation, settling the sector into a more sustainable level where supply and demand is much closer than it has been in recent years.”

The report is designed to provide a forward look at building and construction activity over a six-year period and is based on forecasting by BRANZ and data from Pacifecon (NZ) Ltd, a building economics consultancy, as well as to help the industry plan for its future, Mr Warren said.

“The aim of the report is to provide awareness of the expected pipeline of work to support the sector’s strategic planning, investment in skills and equipment and coordination of construction procurement to meet the sector’s future needs. Having foresight into these areas could help mitigate uncertainty and allow for better preparedness across the sector.”

The report predicts by 2027 total construction activity will fall to $54.6 billion, from a high of $56.9 billion in 2019, with residential building work dropping from a 2022 high of $60.2 billion down to $55.7 billion. However, infrastructure work is predicted to rise from $15.4 billion in 2022 to $15.5 billion in 2027 (with a high of $16 billion in 2026).

“There are strong non-residential and infrastructure pipelines of work including works supporting education, health, fresh water, transport, and subdivisions creating space for future residential and non-residential building activity,” Mr Warren said.

The report predicts a drop in residential work due to a reduction in consents, which it forecasts to fall to 29,990 per annum in 2025 before rebounding to 35,400 in 2028.

The report also suggested that tradies concerned by this could look towards the non-residential market as work is expected to peak at $12.4bn and remain at that level until 2027 and beyond.