Mapping New Zealand’s uneven regional recovery

2026-02-24 - 16:06

The economic recovery appears to be both broadening across sectors and gaining in momentum, a point the Reserve Bank was keen to highlight last week. But how is it being experienced around the regions? One of the big themes of last year was a decidedly lopsided regional performance. The north underperformed the south, and urban areas (outside Christchurch) generally under-performed the regions. Below, we check in on how this dynamic is evolving. It’s worth bearing in mind at the outset that NZ’s regional data is patchy. Regional GDP figures are also far too lagged to be of use. We’ve tried to pull the available regional threads together broadly by sector. So that’s: housing, construction, population, employment, retail, and manufacturing/services. Some convergence in regional economic performance is likely this year. Indeed, a sustained recovery would be difficult without it. The lagged impacts of lower interest rates and a slow turn in migration should assist the service, retail, housing, and construction sectors, thus allowing the cities to play a bit of catch-up. The key takeaway from our regional stock-take is that there are a few early signs of this convergence occurring, but it’s yet to happen to any significant degree. Activity in most parts is steadying, a change from when we first flagged the southern outperformance story two years ago. The recent uplift in construction, services, and manufacturing activity is also looking more evenly spread. And Auckland and Waikato have, notably, nudged a few slots up the relative rankings. But the ongoing outperformance of the South – Otago and Canterbury in particular, but also Southland – continues to leap off the page. The flow of people, both permanent migrants and tourists, and past and continued strength in some key commodity export prices remain powerful supports. By contrast, Wellington, Taranaki, and the top of the South Island more often than not occupy the weaker end of the indicators traversed below, as they have for some time. The table offers a summary of current regional relativities, as we see them. The sections below add detail. House prices/rents – Southland, Canterbury, Otago The ‘tale of two islands’ thematic characterising NZ’s housing market shows few signs of abating. The correction in national house prices ended in April 2023. Note, all house price references are to the seasonally-adjusted REINZ House Price Index. In the 33 months since, house prices have declined an additional 1.4 percent in Auckland and an additional 3.2 percent in Wellington. That’s even as those in Canterbury, Otago, and Southland have soared 7 percent, 10 percent, and 20 percent respectively. Some of the forward indicators – like days to sell a house and the pace of sales activity (details in the housing heat map in appendix) hint at the degree of southern outperformance abating a little in coming months. But probably not to a significant degree given the still favourable South Island fundamentals of a) people flows (see population section); and b) relatively tighter housing supply dynamics compared to the likes of Auckland, Taranaki, and Wellington. These regional supply-side differences are also on display in the rental market. An abundance of available inventory has seen (smoothed) new tenancy rents in Wellington fall 7 percent over the past year. Auckland rents have stabilised about 4 percent below the 2024 peak. The strongest rental price inflation over the past 12 months has been in Otago, the Bay of Plenty, and Canterbury. Zooming out, the chart shows how much rents have converged over the past 5-10 years. Some or all of the once-significant premiums of Auckland and Wellington have been eroded in the wake of differing supply responses and internal migration flows. Construction – Otago, Auckland, Canterbury, Wellington The four-year, 26 percent peak-to-trough decline in residential construction volumes bottomed out last year. A solid slug of building consent issuance since has buoyed hopes the home building cycle will turn back upwards this year. The larger regions – Canterbury, Otago, Wellington, and Auckland – have been at the forefront of this lift in consents. From a low base, Wellington residential consenting numbers rose 18 percent over calendar 2025. The other three regions all posted respectable growth around 12 percent over the same period. Growth numbers in Nelson and Southland were also very strong in 2025, although low absolute numbers of consents issued in the smaller regions can throw these numbers around a bit. For the Auckland, Otago, and Canterbury regions this carries on the recent trend of building relatively well compared to their populations. For Auckland and Christchurch, the boom in townhouse construction has been a big part of the story. The Wellington uplift in consents per capita looks more like some catch-up. Meanwhile, the Bay of Plenty continues to head in the other direction, risking further tightening in its housing market. The number of new consents lodged in the BoP declined 13 percent through 2025. Manufacturing/services – broad The monthly Performance of Manufacturing (PMI) and Performance of Services (PSI) indices give us a reasonable guide to business activity. The signal from both has perked up. Both the PMI and PSI have held above the 50.0 ‘breakeven’ level for two consecutive months now (December and January). A low bar maybe, but it’s the first time it’s happened in almost three years. You can tie yourself in knots (and we did) trying to pull meaningful trends from the surveys’ regional entrails. Our overall conclusion is that the PMI/PSI’s nudge into expansionary territory has been characterised by a relatively broad-based lift around the regions. That’s perhaps in contrast to the past two years in which we’ve seen periods of often mixed fortunes with Canterbury and Otago often doing more of the heavy lifting. Employment – Wellington, Waikato, Bay of Plenty Employment increased in the final quarter of last year, the first such expansion in 18 months. Unemployment nudged up, to 5.4 percent, but we think that’s the peak. A rate below 5 percent is expected by year end. Most regions participated in the December quarter’s jobs gain, with the exceptions of Nelson/Tasman and the Bay of Plenty. Relative to a year ago, Wellington recorded the largest employment increase, closely followed by Waikato, the Bay of Plenty, and Canterbury. Taranaki experienced a 6 percent annual decline. That’s employment, but what of unemployment? The latter puts jobs growth in the context of those seeking work, thus providing a broader picture of labour market conditions. Auckland continues to experience the highest unemployment rate in the country at 6.6 percent (all rates seasonally adjusted). Otago has the lowest at 2.4 percent. It’s remarkable that these two regions shared the same unemployment rate of 4.3 percent as recently as March 2024. Wellington, Waikato, and the Bay of Plenty all have unemployment rates above the national average, while Canterbury, Taranaki, and the Top of the South are below. Retail – Nelson, Otago/Southland, Auckland After a torrid three years, retail activity turned a corner last year. There was even a hint of acceleration in the latest (Q3) official figures. There’s been some zigs and zags through the summer months but through it all a cautiously positive spending trend is becoming established. Retail data split by region is far from perfect – the best of it being either dated quarterly values from Stats NZ (chart above) or a timelier read on regional consumer confidence (chart below). The latter is instructive for directional spending trends but hard data it isn’t. Feeding into the relative spending pulse will be all the other parts of the economy summarised here – the likes of employment, population, house prices, and construction. It’s thus no surprise to see Otago, Auckland, Canterbury, and Southland appearing at the stronger end of the above metrics. It’s more of a surprise to see Nelson/Tasman top both the confidence and spending growth rankings given the region’s more downbeat economic performance elsewhere. This may well reflect spending related to recovery and replacement following mid-2025 flooding. People flows – Canterbury, Auckland, Otago The flow of people, particularly permanent migrants, is both an important driver, and reflection, of regional economic performance. We don’t get particularly timely updates on population growth by region. But, as of June 2025, Canterbury leads the way thanks primarily to the ongoing ‘head south’ vibe in internal migration trends. Otago benefited in a similar fashion. Auckland and Waikato rounded out the top four in the population growth stakes by getting a larger lift from international migration and natural population growth. At the other end of the spectrum, four regions suffered outright population declines last year – Nelson, Marlborough, Gisborne, and Hawkes Bay. Recovering numbers of shorter-term arrivals (i.e. tourists) have also bolstered activity in those regions with strong tourism links. As at December, tourist numbers were back to around 95 percent of pre-Covid levels. The latest passenger numbers from NZ’s international airports show growth in passenger numbers strongly favouring the major South Island airports in the year to December. Disclaimer: This publication has been produced by Bank of New Zealand (BNZ). This publication accurately reflects the personal views of the author about the subject matters discussed, and is based upon sources reasonably believed to be reliable and accurate. The views of the author do not necessarily reflect the views of BNZ. No part of the compensation of the author was, is, or will be, directly or indirectly, related to any specific recommendations or views expressed. The information in this publication is solely for information purposes and is not intended to be financial advice. If you need help, please contact BNZ or your financial adviser. Any statements as to past performance do not represent future performance, and no statements as to future matters are guaranteed to be accurate or reliable. To the maximum extent permissible by law, neither BNZ nor any person involved in this publication accepts any liability for any loss or damage whatsoever which may directly or indirectly result from any, opinion, information, representation or omission, whether negligent or otherwise, contained in this publication.