The volume of building activity recorded its biggest gain in 10 years in the third quarter, led by construction work in Canterbury and the upper North Island.

Building activity rose 9.6 per cent in the third quarter and was valued at $2.9 billion in unadjusted terms, according to Statistics New Zealand. Residential building work made up 56 per cent of the total.

"While the earthquake rebuild in Canterbury contributed to this, residential building work in the upper North Island also experienced growth," industry and labour statistics manager Blair Cardno said.

For residential building activity, Canterbury and the upper North Island, dominated by Auckland, were the main drivers of a 7.1 per cent gain, following a 7.5 per cent gain in the second quarter. The unadjusted value of residential building work jumped 20.1 per cent from a year earlier to $1.6 billion in the latest quarter.


Non-residential building activity rose 12.4 per cent in the third quarter, following a 4.5 per cent decline three months earlier. The value of non-residential work rose 11 per cent from a year earlier to $1.3 billion.

ASB Bank economist Christina Leung said the 9.6 per cent increase in construction activity was "above our and market expectations", driven by very strong activity in Canterbury.

"We estimate construction activity in the region increased 34.1 per cent on a seasonally-adjusted basis over Q3, reflecting the rebuild getting well underway," she said.

"We estimate residential construction activity increased 26.1 per cent in Canterbury over Q3 on a seasonally-adjusted basis, building on the 28.4 per cent increase in the previous quarter. The rebuilding of houses is gaining further momentum, and the continued improvement in residential building consents suggest this will continue over the coming year."

Leung said stronger housing market activity in Auckland over 2012 had likely encouraged house-building, and she expected this would continue to be the case over the coming year.

"The recovery in non-residential construction activity finally appears to be getting underway, following some weakness seen over the first half of 2012," said Leung.

She said the stronger than expected construction activity meant she was now expecting GDP to have increased 0.5 per cent over Q3 (from the previous forecast of +0.2 per cent).

"It is encouraging to see rebuilding gaining a firmer footing, particularly in non-residential construction activity given the weakness seen over the first half of 2012."

On top of the Canterbury rebuild, stronger housing market activity appeared to be encouraging house building, particularly in Auckland.

The subdued pace of household credit growth suggested households remained cautious, and Leung said she expected the Reserve Bank will keep the OCR on hold at 2.5 per cent until September next year.