Navigating a Construction Downturn

Navigating the construction downturn in New Zealand (or anywhere, really) requires a strategic and adaptive approach. The New Zealand construction industry has recently been hit by high interest rates, reduced housing demand, rising material and labour costs, and tighter lending, leading to cash flow problems, insolvencies, and project delays.

Here’s how businesses and individuals in the construction sector can navigate this challenging period:

Construction Businesses

1. Strengthen Cash Flow Management

• Invoice promptly and follow up on late payments.

• Renegotiate payment terms with suppliers or clients where possible.

• Build a buffer – aim for a few months of operating costs in reserve.

• Use tools or software (or a QS !) to monitor project-level profitability and cash flow.

  
  

2. Diversify Your Projects or Services

• Expand into renovation, maintenance, or government-funded infrastructure projects, which may be less cyclical than residential housing.

• Look at green building retrofits or energy efficiency upgrades (these are getting more traction and sometimes subsidies).

• Partner with other trades to offer bundled services (e.g. design & build).

  
  

3. Right-size Your Workforce

• Review staffing needs carefully and consider temporary contracts, job sharing, or upskilling current staff to increase flexibility.

• Avoid overcommitting to new hires unless there's a stable pipeline of work.

  
  

4. Strengthen Client Relationships

• Be transparent with clients about timelines, risks, and pricing—trust and communication are even more critical in tough times.

• Offer value engineering—ways to reduce project costs without sacrificing essential features.

  
  

5. Leverage Government Support or Incentives

• MBIE, Kāinga Ora, and NZ Infrastructure Commission sometimes offer grants or subsidies.

• Monitor tenders for public housing, transport, or infrastructure projects.

  
  

Tradespeople and Contractors

1. Upskill & Diversify

• Gain certifications in specialised areas

• Expand into commercial, repair, or compliance work (e.g. healthy homes standards inspections).

  
  

2. Network Aggressively

• Join industry groups

• Develop relationships with property managers, architects, or small developers—referrals are key.

Property Developer or Investor

1. Focus on Smaller, Lower-Risk Projects

• Avoid large, multi-stage projects with uncertain funding.

• Consider build-to-rent or affordable housing developments, which may have more stable demand or funding support.

  
  

2. Use Pre-sales Strategically

• Secure funding and reduce risk through off-the-plan sales before beginning construction.

• Align construction timelines tightly with sales velocity.

  
  

Market Insights & Trends to Watch

• Interest Rates: Monitor RBNZ signals for rate cuts in 2025–they could revive demand.

• Infrastructure Spending: The government continues to fund long-term infrastructure; pivoting to this could provide more stability.

• Housing Supply Shortage: Long-term fundamentals in NZ still point to an undersupply—position yourself to scale when the market turns.