The lower than expected activity could yet undermine gross domestic product expectations of the Reserve Bank, with that data to be released just two days before the election.
Westpac economist Satish Ranchhod had expected a 4% gain in building activity, but Stats NZ (SNZ) reported a 0.5% decline, in seasonally adjusted volume terms.
''There's a large pipeline of planned construction work.
''However, the combination of stretched capacity, rising costs and tighter credit conditions means that building activity is likely to increase at a gradual pace over the coming year,'' Mr Ranchhod said.
He noted that outside Auckland and Canterbury, spending on residential construction had continued to increase, and was up almost 5% during the quarter.
Nationally, the actual value of building work on new homes was $2.8billion, increasing to $3.4billion when alterations and additions were included, plus $1.8billion non-residential building work.
SNZ prices and construction senior manager Jason Attewell said non-residential building activity was down 0.7% and residential was down 0.4%, compared with the March 2017 quarter.
''This is the second quarter in a row that building activity has fallen, as the post-earthquake residential rebuild in Canterbury winds down.
''In unadjusted terms, building activity in Canterbury slipped to just under $1billion a quarter for the first time in almost three years,'' Mr Attewell said.
Mr Ranchhod said the underlying softness in the June data saw continued declines in both residential and non-residential construction; the ongoing wind back of building activity in Canterbury, as well as softening residential construction in Auckland, the latter down 1% for the June quarter.
''While there's a large shortage of homes in Auckland, the building sector has encountered a number of roadblocks,'' he said.
Rising building costs, strain on building capacity and tightness in credit conditions all appeared to be ''providing a brake on building activity''.
''We expect the home building in the Auckland will increase only gradually,'' Mr Ranchhod said.
Total Auckland building activity was almost $2billion for the quarter, including $1.3billion of residential and $671million from non-residential work.
