Bruce's Blog

Entering 2025, New Zealand’s housing market and sawmilling industry both face a mix of opportunities and challenges shaped by domestic economic conditions, international trade dynamics and government policies. While there are signs of improvement, obstacles remain that will hinder a full-scale recovery for either sector in the short term.

Following a period of declining house prices, there are indicators of a potential rebound. The Reserve Bank is expected to continue to cut interest rates for some time, which should make mortgages more affordable and encourage homebuyers back into the market. A Reuters poll (Sep 2024) forecasts a 6% rise in house prices over the next year, which would provide a much-needed boost to the construction sector. However, several constraints may dampen this recovery. Affordability remains a significant issue, with many first-time buyers still priced out of the market despite the recent price corrections. Additionally, rising unemployment and economic uncertainty have led to weaker consumer confidence, although this may be rebounding.

Government-backed infrastructure projects and urban development initiatives - if they arrive - will support construction activity, but the sector still faces cost pressures from high wages and increasing material costs. Labour shortages continue to be a major issue, particularly in skilled trades, limiting the speed at which new projects can be delivered.

New Zealand’s sawmilling industry, which relies heavily on domestic housing demand as well as exports, is continuing to face a difficult operating environment. On the domestic front, while a housing market recovery would boost demand for structural timber, sawmills are still struggling with high production costs, low margins, excess stock and supply chain disruptions. In addition, rising transport costs, increased energy prices and regulatory compliance have added further financial strain.

China remains the largest export market for New Zealand logs, accounting for more than half of the country’s forestry exports. While there may be initial signs of increased building activity again in China, global demand remains fragile. Recent economic uncertainty in China, partly due to its struggling property sector, has led to unusually low log prices and inconsistent demand. While this generally caps the domestic log price it also limits harvest as the forest owner needs a meaningful economic return, or they can just leave the trees in the ground until prices improve. This in turn  limits choice and availability into the domestic sawmills.

The second Trump presidency will also bring further uncertainty to global trade. If or when Trump enacts his promised new tariffs or engages in further economic conflicts with China, this would undoubtedly indirectly impact New Zealand’s export markets. Additionally, any of his policies that increase global inflation could affect interest rates and borrowing costs, influencing both housing affordability and construction investment.

Outlook for 2025

The year ahead presents a mixed outlook for the housing and sawmilling industries. If interest rate cuts continue and employment levels stabilise, the housing market could regain momentum, supporting domestic timber demand. However, sawmills will continue to face cost pressures, limited domestic demand and price pressure due to consequent over-supply for some time yet. Global economic factors, particularly China’s demand for logs and potential U.S. policy changes, will also play a significant role in shaping the industry’s ongoing performance.

For sawmillers, survival in this environment will require careful cost management, supply chain efficiency, and exploring new market opportunities to reduce reliance on a fragile and volatile domestic market.