Capital expenditure on construction

IBISWorld forecasts capital expenditure on construction to strengthen by 2.2% in 2025-26, to $32.9 billion. The recent trend of a decline in the cash rate has reduced the cost of borrowing, while at the same time, a recent recovery in the number of dwelling consents issued has resulted in more capital being expended on construction in New Zealand (Aotearoa). Still, the elevated cost of building materials has prevented this growth from accelerating further as construction firms have been presented with fewer projects that offer meaningful returns.

During the pandemic years of 2020-21 and 2021-22, capital expenditure on construction was robust, underpinned by surging housing prices and a notable supply shortage. The environment of historically low interest rates further accelerated activity and dwelling consents peaked accordingly. However, a sharp tightening cycle that carried through 2023-24 raised the cost of debt and cooled construction spending. According to the MBIE National Construction Pipeline Report, by 2024 and into early 2025, building work volumes and new dwelling completions had declined, with residential construction falling from over NZ$6 billion to below NZ$5 billion—a significant drop by historic standards. Despite a recent boost in consent numbers, output and confidence have struggled to recover and most forecasts anticipate that residential construction output will remain subdued, at least through the remainder of 2025.

Total construction activity has been supported by significant investments in new infrastructure over the past five years, through to the end of the 2025-26 financial year. In January 2020, the New Zealand Government (Te Kawanatanga o Aotearoa) introduced the New Zealand Upgrade Programme, committing $6.8 billion to transport infrastructure upgrades, supporting capital expenditure on infrastructure. The new National government has shaken up the government's priorities since being elected in 2023. This change of direction included scaling back upgrades for the Interislander terminal in Wellington and Picton in late 2023. However, the new government has committed to further infrastructure spending in regional areas and on transport infrastructure. Overall, IBISWorld forecasts capital expenditure on construction to strengthen at a compound annual rate of 0.4% over the five years through 2025-26.