New Zealand house building activity grew at its fastest pace in almost 12 years in the first quarter as construction ramped up to rebuild the country's second-biggest city and fill a housing shortage in Auckland.

The volume of residential building work put in place grew a seasonally adjusted 15 per cent in the three months ended March 31, the biggest quarterly increase since September 2002, and accelerating from a 2.3 per cent rise in the December quarter, according to Statistics New Zealand.

The value of residential building work grew 17 per cent to $2.36 billion in the period, its eighth quarterly gain. The volume of non-residential work grew 17 per cent in the first three months of the year, from a fall of 2 per cent in the December quarter, and the value climbed 18 per cent to $1.4 billion.

"It's definitely stronger than what we had in mind," said Christina Leung, economist at ASB Bank in Auckland. "Our expectations were for a modest increase in construction activity that reflected the fact everything's tracking up.


The tick up in actual building activity coincides with growing issuance of new consents with the country's two biggest cities, Auckland and Christchurch, driving work due to their respective housing shortages. Local authorities issued residential building consents worth $2.29 billion and non-residential permits worth $1.19 billion in the March quarter.

See the full release from Statistics NZ here:

Construction activity is seen as a major driver for economic growth in the coming year, and the Reserve Bank is closely watching whether inflation pressures are growing from the Canterbury and Auckland building programmes.

ASB's Leung said today's data is unlikely to prompt the Reserve Bank to ramp up its tightening of monetary policy because inbound migration is adding to the supply of workers and alleviating some of the labour costs associated with the Canterbury rebuild. ASB expects governor Graeme Wheeler will life the official cash rate 25 basis points next week to 3.25 per cent, before pausing until the December meeting. Traders are betting the bank will hike the key rate 81 basis points over the coming 12 months, according to the Overnight Index Swap curve.

The New Zealand dollar recently traded at 84.32 US cents from 84.34 cents immediate before the release.

Today's figures showed Canterbury building work rose 25 per cent in the quarter, with residential activity up 31 per cent and non-residential up 16 per cent.

On an unadjusted basis, new residential work rose 29 per cent to $1.77 billion in the quarter, for an annual lift of 26 per cent to $6.4 billion. Non-residential building work grew 12 per cent to $1.3 billion from March 2013, and was up 4.2 per cent to $5.03 billion on an annual basis.