**New Zealand**: The construction sector faces a downturn due to high interest rates, government reforms, and pandemic impacts. However, legislative changes and infrastructure initiatives suggest potential recovery in 2025, with new financing methods and ongoing reforms aimed at revitalising the industry.
The construction sector in New Zealand is currently navigating a challenging landscape as economic conditions remain difficult. According to a review by Brendan Cash, Caitlin Hogan, Ezekiel Hudspith, and Miles Rout from Dentons, the year leading up to 2024 was marked by high interest rates, changes in government and their ensuing policies, and delays in project initiation. These factors have collectively contributed to a notable lull in construction activity, with many firms grappling with cash flow challenges, particularly concerning ongoing projects affected by the Covid-19 pandemic.
Economic indicators corroborate these sentiments, as the latest GDP figures showed a quarterly growth and annual growth rate of -0.2 percent for June 2024. This downturn has directly influenced building consents, leading to a significant 17 percent drop in new dwelling consents and a 6.4 percent decline in non-residential building consents over the year ending September 2024. The altered economic environment has also led to a reported 22 percent increase in construction insolvencies, highlighting the industry’s struggles under current conditions.
Further complicating the landscape are recent legislative changes implemented by the new coalition government, which have aimed to repeal and replace previous reforms regarding water services and resource management. In February 2024, the government repealed the Affordable Water Bill, and subsequent legislation has since attempted to streamline the management of water services at the local government level. The Local Government (Water Services Preliminary Arrangements) Act 2024 aims to facilitate the establishment of council-controlled organisations to oversee these services.
On resource management, the government’s reform efforts, packaged into three phases, have seen the repeal of the Natural and Built Environments Act and the Spatial Planning Act. There are currently proposals pending that aim to speed up decision-making through expert panels rather than relying solely on ministerial guidance.
Alongside these reforms, the government has announced the establishment of the National Infrastructure Financing and Funding (NIFF), which began operations on 1 December 2024. This initiative marks a significant shift toward incorporating private financing in public infrastructure projects, serving as a conduit for unsolicited proposals and encouraging private sector investment in public infrastructure.
Increased focus on infrastructure was also evident in the government’s announcement of a 30-year infrastructure plan, with solicited input from the construction sector planned for April 2025. Additionally, significant funding has been allocated for pothole prevention, totalling NZ$4 billion—NZ$2.07 billion for state highways and NZ$1.9 billion for local roads—over the next three years.
Looking ahead to 2025, there are expectations of positive developments in the construction arena. The official cash rate (OCR) has decreased to 4.25 percent, with further reductions anticipated, signalling a potential easing of financing for construction ventures. Major public-private partnership (PPP) projects are in the pipeline, notably the Northland Corridor Roads of National Significance (RoNs) project and a new Christchurch Men’s Prison.
Furthermore, proposals concerning the utilisation of KiwiSaver funds for infrastructure financing are under development, providing prospective avenues for funding public infrastructure outside conventional channels. Meanwhile, other private sector efforts, such as investments by Simplicity into Build to Rent Homes, address growing housing shortages.
Regarding contract reform, the New Zealand Standards (NZS) 3916 and 3917 will be reviewed, driven by the need for updated frameworks that reflect the current construction environment. Expectations are set for revised documents to be made available for consultation by mid-2025.
Overall, while the preceding year has presented numerous challenges for the construction sector, developments in legislation, infrastructure funding, and potential market stimulation could herald a more productive and optimistic 2025 for industry stakeholders.
Source: Noah Wire Services
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