Banks divided over timing of construction recovery 

Major bank forecasts point to more consented homes and an eventual lift in residential construction – but disagree over how soon the increased pipeline will translate into building activity

Westpac expects residential construction to pick up during the latter part of 2026, while BNZ forecasts a modest June-quarter increase led by the residential sector. However, Kiwibank expects higher costs, interest rate rises and continued uncertainty to keep a lid on housing activity until mid-2027. 

ANZ sits between those positions, forecasting a gradual economic recovery but warning that elevated housing supply, rising mortgage rates, election uncertainty and unemployment mean house prices are unlikely to provide a significant boost in the near term. 

Consents point to more work

In its August Economic Overview, Westpac said residential construction activity had tracked sideways for the past 18 months but was expected to increase through the latter part of this year. 

More than 40,000 new homes were consented in the year to June, with much of the planned work relating to medium-density developments in Auckland and Canterbury. 

Kiwibank’s economic outlook also identified an increase in planned residential work. It reported that housing consents were up 16% in the year to April, with more than half relating to higher-density homes. 

Canterbury recorded consent growth of 29%, followed by Auckland at 21% and Wellington at 13%. 

However, Kiwibank said the increase in consents had yet to translate into stronger activity on the ground. Residential building expenditure fell 3.1% in the March quarter, while non-residential building expenditure declined 3.4%. Construction activity was down 1% quarter on quarter. 

Rising costs constrain activity

Kiwibank expects a further delay before housing-market and construction activity improve, with the 2026 election, oil-market uncertainty and interest rate increases all affecting developers and buyers. 

It said the spike in diesel prices had contributed to building costs rising by 15%, causing some developers to postpone or cancel projects. 

The value of building work put in place had also fallen sharply across the country. Kiwibank reported declines of 39% in Wellington, 38% in Waikato and 27% in Auckland. Canterbury was down 14%, although the bank said the region remained one of the country’s stronger performers. 

Westpac also identified rising materials and financing costs as barriers to a stronger residential recovery. Weak house-price growth and the substantial increase in New Zealand’s housing stock in recent years were expected to constrain building activity, particularly given relatively low population growth. 

The outlook is weaker for non-residential construction. Westpac said activity had trended down over the past two years and a turnaround was unlikely in the near term. 

The bank reported that demand for new space remained limited and the planned pipeline had tracked sideways. Retail and office developments were particularly soft, although industrial construction had shown greater resilience. 

Interest rates remain a risk

The banks also differ over the extent to which interest rates should increase. 

Kiwibank argued that rate rises were not warranted given weak demand, low wage growth and elevated unemployment. It forecast that the economy would begin a cyclical rebound in 2027, effectively delaying growth previously expected during 2026. 

ANZ, meanwhile, expects the Official Cash Rate to reach 3% by the end of 2026 and remain at that level through 2027 and 2028. 

In its August Quarterly Economic Outlook, ANZ said interest rate increases remained appropriate to contain inflation pressures in interest-sensitive parts of the economy, including rents, residential construction and discretionary household spending. 

“New Zealand’s economic recovery remains intact but it is proving uneven, gradual and increasingly vulnerable to upside inflation risks,” ANZ said. 

Housing market uneven

Westpac expects national house prices to remain flat during 2026 before rising by just 2% in 2027. 

It said increased housing supply and improved affordability had supported more first-home buyers, with developers using more permissive regulatory settings to deliver smaller and more affordable homes in popular areas. 

However, regional conditions remain uneven. Westpac said areas benefiting from strong agricultural returns and tourism had experienced stronger income, population and housing-market growth. 

ANZ similarly identified a split between the North and South Islands. It said strong agricultural incomes, international tourism and relatively affordable housing had supported Canterbury, Otago, Southland and the West Coast. Auckland continued to be affected by weak migration, higher interest rates and a subdued housing market. 

Kiwibank also reported a growing regional divide. Average asking prices in Central Otago and the Lakes had reached about $1.67m, more than 20% higher than a year earlier, while Auckland prices remained broadly flat at just over $1m. 

Concrete production provides positive signal

Concrete production increased 3.7% during the quarter, according to BNZ’s 31 August Markets Outlook. 

BNZ said the increase provided “some optimism for non-residential building”, although it cautioned that the result could reflect infrastructure work that is not well represented in Building Work Put in Place data. 

The increase provides a positive signal for concrete producers and other building-material suppliers but BNZ remained cautious about whether it represented a broader construction turnaround. 

Westpac’s expected residential pickup and the medium-density pipeline also point to the potential for stronger demand as consented projects move into construction. Kiwibank’s evidence that building work is still declining suggests any improvement may remain gradual. 

Overall, the reports point to more residential work ahead, although a construction recovery has not yet been firmly established.