National construction activity looks set to be entering a cooldown period in the residential sector (and a more modest shift in the non-residential sector).

The Ministry of Business, Innovation and Employment commissioned the Building Research Association of New Zealand (BRANZ) and construction research consultancy Pacifecon to jointly prepare the National Construction Pipeline Report 2022 (Report). The Report provides a forecast of national building and construction activity over a 6-year period ending 31 December 2027.

The Report is based on building and construction forecasts from BRANZ and data from Pacifecon on researched non-residential building and infrastructure intentions. It includes national and regional breakdowns of actual and forecast residential construction, non-residential construction, and infrastructure activity.

New Zealand is experiencing a period of significant uncertainty in the building and construction sector, characterised by material price inflation (above the national average), labour shortages, supply chain disruptions, changes to the Building Code, and credit constraints caused by amendments to the Credit Contracts and Consumer Finance Act 2003. Against this backdrop, the Report aims to outline a clear pipeline of building and construction work to support:

• effective planning by all sector participants;
• scheduling investment in skills development and capital equipment; and
• coordinating construction procurement (particularly for central and local government) to facilitate better scheduling of construction projects.

Given the Report’s overall message of a cooldown period, it suggests that improvements in the these areas could help moderate the “boom-bust” cycles that have adversely impacted productivity, innovation, employment, and skill levels in the construction sector.

The Report predicts a number of interesting trends:

Construction activity forecast to decrease steadily

• National construction activity is forecast to decrease steadily from $50.9 billion in 2021 to around $41.7 billion in 2027, driven largely by the reduced strength of the residential sector, which contributed to 60% of national construction activity in 2021.
• Residential construction activity increased 11% to $30.6 billion in 2021 in the wake of the COVID-19 lockdowns in 2020. It is forecast to decrease to $19.6 billion in 2027, which would mark the lowest level since $17.8b billion in 2015.

Residential consents to fall from record high

• Residential consents are forecast to reach 223,000 new dwellings over the next six years at an average of over 37,000 dwellings per year, similar to levels seen in 2019.
• However, annual numbers are forecast to fall from 48,895 in 2021 to 32,010 in 2027, which would mark the lowest number since 31,081 in 2017.
• Multi-unit consents are forecast at 22,680 in 2022, falling to 14,380 in 2027.

Non-residential activity to peak in 2023

• Non-residential activity is forecast to peak in 2023 at $11.1 billion, up from $10.2 billion in 2021. From 2023, a modest fall in activity to $10.7 billion in 2027 is predicted.
• However, there is a strong pipeline of work in Otago’s non-residential sector, led by large projects such as the new Dunedin Hospital, KiwiRail’s Hillside Workshops redevelopment, the University of Otago’s Te Rangi Hiroa Residential College, and Skyline Enterprises’ Queenstown gondola redevelopment.
• Commercial buildings dominate non-residential building work, contributing 43% of the total number of projects and 44% of total value.

Steady growth in infrastructure activity throughout the forecast period

• In 2021, infrastructure represented one fifth of total building and construction activity. By the end of 2027, infrastructure’s share of total building and construction activity is forecast to increase to over one quarter.
• Transport, water and subdivision projects will dominate new infrastructure activity in 2022, contributing 91% of the projects and 93% of the total value.
• National infrastructure activity is forecast to increase steadily from $10.2 billion in 2021 to $11.5 billion in 2027.

This article was co-authored by Will Turner, a Solicitor in our Construction and Infrastructure team.