(Bloomberg) -- New Zealanders are spending less on building new houses despite prices for construction materials and labor climbing in the past year.

The actual value of new residential construction fell 4.5% in the third quarter from a year earlier to NZ$5.3 billion ($3.3 billion), Statistics New Zealand said Tuesday in Wellington. That’s the first annual decline in more than three years, when the pandemic lockdown stalled building activity.

High interest rates and a weak property market have damped building activity, adding to cooling economic growth. The slump in the amount actually spent on new homes comes despite the cost of construction of rising 5% in the year through September.

The statistics agency said the seasonally adjusted volume of residential building, which excludes the inflationary impact, fell 0.6% from the second quarter.

Revisions to the data series show that construction has been slightly stronger than previously portrayed. Second-quarter residential construction volumes rose 0.9% rather than falling 2% as reported in September.

While that reflects a large backlog of work created by capacity constraints in the industry, “2024 is likely to be much tougher for many building firms,” said Satish Ranchhod, senior economist at Westpac Banking Corp. in Auckland.  

“Residential consent issuance has fallen 20% over the past year with developers reluctant to bring new projects to market and prospective buyers cautious about purchasing off plan,” he said. “That will flow through to lower building activity over the next year.”

Overall construction volumes fell 2.4% in the third quarter, with non-residential building declining 5.9%.

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