Capital expenditure on construction

IBISWorld forecasts capital expenditure on construction to fall by 2.4% in 2024-25, to $32.7 billion. A higher cash rate has increased the cost of borrowing while uncertain economic conditions have eroded business confidence, discouraging businesses from committing to construction projects. This is expected to lead to a decline in dwelling consents in 2024-25. The elevated cost of building materials in recent years is also delaying new projects or making them economically unviable, limiting construction activity.

Capital expenditure on construction was relatively resilient during the COVID-19 pandemic, contributing to overall growth. Construction activity had increased strongly in the years leading up to the pandemic and growth in construction spending was supported by strong housing prices and a housing supply shortage in 2020-21 and 2021-22. Dwelling consents at the height of the pandemic soared due to these factors and were further supported by a low interest rate environment, further driving capital expenditure on construction projects over the period. However, the cash rate rose strongly over the three years through 2023-24, raising the cost of debt and discouraging capital expenditure on construction projects.

Total construction activity has been supported by major investments in new infrastructure over the past five years. 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 included denying additional funding for the Interislander terminal upgrades in Wellington and Picton in late 2023, but the new government has committed to further infrastructure spending in regional areas and on transport infrastructure. Overall, IBISWorld forecasts capital expenditure on construction to rise at a compound annual rate of 0.2% over the five years through 2024-25.