Home Construction Approvals Surge, Indicating Sector Recovery

Construction activity in New Zealand is showing signs of recovery, as new home approvals increase after a prolonged period of stagnation. The number of homes approved for construction has climbed to over 35,500 in October 2025, according to data from Cotality. This marks a significant turnaround from the low point of around 33,500 to 34,000 approvals reached earlier in the year.

Cotality’s Cordell Construction Cost Index revealed that residential building costs rose by 0.9% in the fourth quarter of 2025, marking the largest quarterly increase in over a year. Annual growth for construction costs has now reached 2.3%, up from 2.0% in the third quarter of the previous year. Despite this increase, the figures remain below the long-term average of 4.1%.

Signs of a Gradual Recovery

Kelvin Davidson, chief property economist at Cotality, noted that these figures indicate a gradual recovery in the construction sector. Following a peak of more than 51,000 approvals in the twelve months leading up to May 2022, the sector had faced a significant decline. Davidson stated, “We’re now seeing a clear lift, which fits with what builders are telling us — that workloads are starting to pick up again.”

The recovery can be attributed to several factors, including lower mortgage rates and exemptions for new builds under loan-to-value and debt-to-income lending rules. These changes have made it easier for households to finance construction projects or buy homes off the plans. Davidson emphasized that while costs remain high, the extreme inflation observed in the post-COVID phase has subsided.

Looking Ahead: Cautious Optimism

Although costs have not decreased significantly, the pace of increase has moderated compared to the spikes seen in previous years. Davidson remarked, “While costs haven’t fallen in any meaningful way, the pace of increase has clearly moderated.” He anticipates that construction activity will continue to grow throughout 2026, with modest increases in costs expected as the recovery becomes more established.

In a broader economic context, the Quarterly Survey of Business Opinion released by the New Zealand Institute of Economic Research indicated a substantial rise in business confidence during the final quarter of last year. A net 39% of firms expressed optimism about improving economic conditions over the next six months. This increase of 17% reflects the most positive outlook among businesses since 2014.

As the construction sector begins to rebound, the combination of improving market conditions and supportive financial measures may set the stage for sustained growth in the coming years. While challenges remain, the current momentum suggests a hopeful trajectory for both builders and the broader economy.