Housing shortage expected to underpin construction despite dip in consents

Thursday, 30 May 2019

New house building may be approaching its peak over the next year or two.

House building may be approaching a peak but will remain strong this year as the housing shortage spreads and lower interest rates kick in.

ASB senior economist Jane Turner said monthly housing consent figures were volatile and other evidence indicated the housing shortage had moved beyond Auckland to Wellington and regional centres, which would support building activity.

The April housing consents show an overall 7.9 per cent decline but from a high level.

'The Government's decision to rule out a capital gains tax will likely boost investor confidence,' Turner said.

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There were no signs of a slowdown in commercial construction despite weak business confidence levels, she said.

Westpac senior economist Satish Ranchhod expects strong construction activity over the coming year, but says the peak in the building cycle is approaching.

Auckland contributed most to the monthly decline, particularly for apartment approvals.

'The underlying trend in dwelling consent issuance remains positive. Auckland, Waikato and Wellington residential consents remain at a very high level, while the three-month moving average in Canterbury is now lifting after many years of steady declines,' Turner said.

The number of consents may have been affected by the close proximity of Easter holidays and ANZAC day resulting in fewer working days than normal, she said.

The declines came after a year of strong gains when consents grew for homes, shops, restaurants and bars, warehouses, factories, and social, cultural, and religious buildings. Demand for hotel and motel construction remained at very high levels.

Infometrics economist Paul Barkle said the 46 per cent decline in apartment consents in April dragged down the monthly numbers, while consents returned to more normal levels in Otago after a strong run in March.

Building consents for new apartments in Auckland fell by 10 per cent in April, but the figures tend to be volatile.

Westpac senior economist Satish Ranchhod said the residential figures were weaker than expected.

'We expect continued strong construction activity over the coming year, but the peak in the building cycle is approaching.'

Ranchhod said low interest rates, strong house price gains, and firm export incomes was supporting home building especially Waikato, Whanganui-Manawatu, Wellington, Otago and Canterbury.

Home building was tapering off in Northland and Bay of Plenty, Ranchhod said.

He forecast the peak in nationwide construction would occur in 2020, partly due to the wind down of post-quake rebuild work.

'Beyond 2020 we don't expect to see the sort of large increases we saw in previous years, and in some regions there could be modest declines.

'That's because after strong increases in recent years, home building activity is now more commensurate with population growth. In addition, while population growth is currently elevated, migration is past its peak and we expect it will continue to gradually ease back,' Ranchhod said.

In April 2019, there were 2605 new dwellings consented, comprising 1659 stand-alone houses, 553 townhouses, flats, and units, 201 retirement village units, and 192 apartments.

Over the year ended April 2019, the number of new dwellings consented was 34,392, up 7.4 per cent from the previous year.

The annual value of the work consented was $7.5 billion, up 11 percent from the April 2018 year.

The number of new dwellings consented over the year included 13,754 in Auckland up 18 per cent, 3893 in Waikato up 12 per cent, 2729 in Wellington up 3.5 per cent, 5466 in rest of the North Island down 6.7 per cent, 4958 in Canterbury up 0.3 per cent, and 3584 in the rest of South Island up 3 per cent.