Total building work rose 5.8% in the March quarter, easily outstripping the 1% forecast of Westpac economist Nathan Penny.
Canterbury's activity surged 23% in value in the quarter and the rest of the country posted a respectable 5.1% increase, he said.
Residential building work rose 12%, the highest increase in 10 years. Non-residential building fell 0.8%, although that followed a combined rise of about 15% over the second half of last year.
''The nationwide level of building activity is about half-way to the peak of the last cycle. We will be watching for signs of capacity constraints emerging as activity accelerates over the next couple of years,'' Mr Penny said.
ASB economist Christina Leung said the 12% increase in residential construction was stronger than she expected. Increased activity in Canterbury and the South Auckland-Bay of Plenty regions were the key drivers for that increased activity in the first quarter.
Residential construction activity also continued to improve in the Central Auckland and Northland regions.
''There has been an increase in residential construction in Auckland over the past year as the acute housing constraints and higher house prices encourage house-building demand. We expect earthquake rebuilding in Canterbury and continued house building demand in Auckland will remain the key drivers of higher residential construction activity over the coming year,'' Ms Leung said.
The implications of the increased construction activity would boost GDP (economic activity) and offset some of the negative effects of the drought in the March quarter, she said.
Across the Tasman, Australia's economy grew 0.6% in the first three months, below expectations, official figures out yesterday showed. In the past year the economy grew by 2.5%.
Ms Leung said business surveys pointed to an improvement in commercial building intentions in recent months and ASB expected that would flow through to a recovery in non-residential construction across New Zealand in the coming year.
Capacity pressures and construction cost inflation would be important developments to watch as construction activity continued to increase.
''While the overall inflation environment is subdued for now, the extent to which these capacity pressures lift underlying inflation will be a key consideration for the Reserve Bank.''
The central bank was expected to raise the official cash rate next March, she said.
