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Infometrics' quarterly report showed construction activity is a "bright spot" in Rotorua's economy as residential consents rise. Photo / Getty Images

Construction activity is a "bright spot" in Rotorua's economy as residential consents rise, a new report shows.

Tricky tourism conditions continue to weigh on economic activity but local experts say the sector is feeling positive, with strong visitor interest and a packed events calendar for the next nine months.

Infometrics' June 2022 Quarterly Economic Monitor showed economic conditions remained challenging in Rotorua, with provisional estimates pointing to a 2.8 per cent fall in activity in June.

Declining growth in the first half of the year limited Rotorua's annual growth to 0.1 per cent.

The report showed a 39 per cent rise in r0esidential consents issued in the last year, with quarterly consent numbers at double the 10-year average.

"Construction remains an important bright spot for the Rotorua economy," the report said.

"Quarterly consents have now been at or just shy of 100 consents a quarter for the last five quarters."

But the challenging tourism environment continued to weigh on economic activity, with guest nights in the last year down by a third - 33 per cent - from a year ago. This was a greater hit than a 19 per cent drop nationally.

"All areas with a strong tourism focus have been hit by the lower levels of tourism over the last year, as Delta restrictions then Omicron disruptions have hampered demand and supply in the sector," the report said.

Tourism spending in Rotorua also fell 15 per cent in the year to June, while Marketview data showed a 4.8 per cent rise in card spending in the three months to June.

A seven per cent drop in annual car registrations suggested inflation remained a challenge to households, with many putting off larger purchases as budget challenges forced a rethink of spending priorities.

Employment rose 2.6 per cent in the last year but Rotorua businesses were facing the same difficulties finding staff as many other areas as growth slowed to 1.6 per cent in the three months to June.

Infometrics principal economist and director Brad Olsen said underlying economic activity had picked up since the earlier peak in Omicron cases in March as New Zealand moved to orange and spending activity rebounded.

"But capacity constraints around finding enough labour and materials have prevented regional economies from growing even further."

Olsen said growth in filled jobs across New Zealand had been more restrained in recent months, despite job ad numbers and underlying demand for workers remaining high.

"A tight labour market provides a strong foundation for regional economies but is also piling the pressure on, as short-term sickness and a continued brain drain of young talent make it hard to resource current levels of business.

"Around half the current net migration outflow from New Zealand is young people, presenting a key constraint on provincial economies, which are struggling to source the talent needed."

Olsen said high inflation and rising interest rates were weighing on household sentiment and undermining spending growth.

"Although spending levels are up from a year earlier, high inflation means Kiwis are getting less bang for their buck.

"Infometrics estimates suggest around 40 per cent of recent increases in spending are due to inflation rather than real growth in spending volumes."

Overall tourism activity in the June 2022 quarter was weaker despite the border starting to reopen, with a 6.9 per cent annual drop in guest nights across the country.

Olsen said after a strong run of domestic tourism, the recent pull-back had contributed to a softening in regional economies.

"The path ahead for regional economies remains uncertain, with New Zealand facing a range of negative influences including weak confidence, high inflation, rising interest rates, a tight labour market, and ongoing supply chain disruptions.

"However, these negatives will be mitigated by the border reopening, reduced Covid case numbers, and less restrictive trading conditions outside Red.

"In the case of regions where international tourism was a highly important part of their economy, the offsetting positive effects of the border reopening could be considerable over the next few quarters."

Figures from Rotorua Lakes Council showed the number of new dwellings consented for the financial year from July 1, 2021, to June 30, 2022, was 347. The value of building consents issued for the financial year to date was $279,404,403.

That was compared to 280 new dwellings consented and a value of $213,760,601 the previous financial year.

Council's deputy chief executive of district development, Jean-Paul Gaston, said the ongoing rise in building consents was a good sign.

Gaston said Rotorua needed more homes of all types to address the district's current critical housing shortage from different-sized market homes to public and social housing, and affordable rentals.

"We will need thousands more homes in the medium to long term to meet expected future demand and we are working hard on multiple fronts to achieve the progress needed to get more homes built as quickly as possible."

That included the council's Housing for Everyone – Plan Change 9, which would support intensification and enable more housing in a way that also protected and enhanced the district, he said.

"Infrastructure needs are often a barrier to development and we are continuing to work with developers on stormwater planning to support housing development at Wharenui and Pukehangi Heights.

"Investment in infrastructure improvements – which at Wharenui also includes roading – has provided the certainty developers need to move forward with planned developments.

"We have recently also focused on supporting proposed papakāinga developments so that they are in a strong position to apply for development funding through Whai Kainga Whai Oranga."

Gaston said the plan change also aimed to encourage this type of development by changing the rules to make it easier.

"We continue to get increased interest from aged care providers and lifestyle villages looking to establish themselves in Rotorua and we are providing support to assist them with assessments and site selection."

Chief executive of RotoruaNZ Andrew Wilson said border closures, Delta and Omicron disruptions in the past 12 months had ultimately dragged performance backwards.

But he said it was positive to see an increase in spending for the quarter to June.

"It gives us good reason to be optimistic about the future for tourism as we head into the warmer months."

Wilson said the tourism sector was feeling relatively positive with strong interest from international visitors and a packed events calendar for the next nine months.

"These are all event types including business and are both mid-week and weekend bookings."

The agency's recent survey of Rotorua's business community highlighted the main challenges as the costs associated with doing business, finding skilled staff and regulatory and policy changes, he said.

Retail NZ chief executive Greg Harford said while things may have been relatively positive in the year to June, things were tightening up.

The latest Retail Trade Survey results from Stats NZ suggested retail spending in the Bay of Plenty was down 0.96 per cent in the last quarter (or 0.62 per cent in seasonally adjusted terms).

"This reflects the fact that customers are tightening their belts as the effects of higher interest rates and a depressed property market start to bite.

"We are seeing consumers look to reduce non-discretionary spending, and they are starting to trade down to cheaper brands."