New Zealand's housing consents fell 4.9% in December 2025 but remain at a two-year high on an annual basis, signaling a gradual recovery in residential building activity, according to a Tuesday report by Westpac (NZE:WBC, ASX:WBC).

Despite a small December 2025 decline, annual residential consents rose 9%, up from 7% a year earlier, signaling higher planned construction and a gradual industry rebound.

The bank said that December 2025's easing followed months of strong gains, with healthy consent issuance, while developers are encouraged to start new projects as lower interest rates cut financing costs and are expected to drive buyer demand.

The bank noted that earlier moderation in building costs seems to be stabilizing, with most planned construction growth concentrated in Auckland and Canterbury, and smaller gains in Wellington, Otago, and Southland.

Westpac expects residential building activity to gradually strengthen from mid-year, despite being constrained by low population growth and recent large increases in housing stock.

The pipeline of consented non-residential projects has remained largely unchanged, with office and industrial developments steady, while retail and hospitality projects continue at modest levels.

Despite recent surveys showing improved business sentiment and trading conditions, companies are likely to stay cautious about major capital expenditure after several difficult years, the bank added.