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Building costs for new homes up 13% in last 12 months, up 17.5% in Auckland

Property
Building costs for new homes up 13% in last 12 months, up 17.5% in Auckland

There was little to cheer about in the latest dwelling consent figures released by Statistics NZ.

They showed that 2834 new homes were consented in August, barely changed from the 2811 that were consented in July and up only slightly from the 2752 consented in June. August's numbers were up 14% compared with August last year.

However that's well short of the sort of increase in numbers that is going to be required to make any sort of a dent in the Auckland housing shortage.

And although the number of new homes being consented is largely flat, their value is increasing rapidly, with the total value of consents issued up 13.2% in the month.

That means the average value of dwelling consents issued was $357,445 in August, up $39,053 (13.2%) compared to July.

Those figures suggest that not only are too few homes being built to supply demand, but their cost is also rising rapidly.

In Auckland where the housing crisis is most severe the figures are even more dire, with 1970 new dwellings consented in August, down from 1087 in July but up from the 741 consented in August last year.

However while the number of new dwelling consented in Auckland was down compared to July, the total value of new consents rose strongly, from $357 million to $380 million.

Over the last 12 months the average value of new dwelling consents issued in Auckland has increased by $58,410 (17.5%), from $333,333 in August last year to $391,752 in August this year.

And those figures exclude the cost of land and other costs that determine the eventual selling price of a home.

That suggests that not only are not enough new homes being built in Auckland, but the price of those that are being built is rising strongly and affordability will be worsening.

That helped propel the annual value of consents issued for new homes past $10 billion for the first time in the 12 months to August.

"Consent values are the highest they've ever been, however in terms of the numbers, we're still not building quite as many homes as we did around 2004 and are still well short of the building boom in the mid-1970s," Statistics NZ business indicators senior manager Neil Kelly said.

On top of the $1.013 billion worth of new dwellings that were consented in the year to August, another $167 million of structural alteration work was consented for existing dwellings, taking the total value of residential building work consented to $1.181 billion for the year.

However while the value of residential building work is up, the value of commercial building work is heading in the opposite direction.

The value of non-residential building consents declined for the second month in a row to $534 million in August, down from $739 million in June and well below the $671 million of non-residential work consented in August last year.

In a First Impressions newsletter on the consent figures, Westpac economist David Norman said the appeals lodged against Auckland's new Unitary Plan would be likely to slow down the consenting process in Auckland.

"The administrative burden associated with a resource consent has increased significantly for both developers and council staff as a result of the appeals," he said.

"These obstacles mean we are unlikely to to see a sudden uptick in resource consents, and consequently in building consents issued that it was hoped the Unitary Plan could deliver in short order." 

Building consents - residential

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7 Comments

Great to see supply keeping up with demand! Maybe we should consider increasing immigration!

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Greg , good article , I have an issue that I think requires some investigation

I see my comment ( In Prof Tookeys piece) about making 99 year leasehold council land available to low income families for affordable housing had many replies

I really believe it has merit , because there is simply no alternative solution to this conundrum of affordabel housing

The leasehold model should be simple , easy to manage , and affordable , and be available to folks in the " excluded middle class " such as schoolteachers , fireman, librarians , policemen, nurses and the like who are being excluded from even living in Auckland . ( As Stiassny has pointed out )

It needs to be a model where there is certainty , and affordability , and security of tenure for the long term .

Houses on leasehold council-owned land MUST be owner and family occupied , and this will keep rent-seeking investors out of the game .

I have some thoughts on this matter , and I think the idea needs to get some traction becasue it works elsewhere in the OECD

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No improvement for Auckland and no decline in Canterbury.

Canterbury has consistently been building 500+ houses a month since Sept 2013 and Auckland struggles to break the 1000 houses a month.

Further proof that Nick Smith's Auckland SHA plan has completely failed.

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Over the last 12 months the average value of new dwelling consents issued in Auckland has increased by $58,410 (17.5%), from $333,333 in August last year to $391,752 in August this year.

And those figures exclude the cost of land and other costs that determine the eventual selling price of a home.

Do banks have enough capital set aside to cover rising price risk associated with residential property assets?

ANZ, like ASB, BNZ and Westpac, is allowed to use the Internal Ratings Based (IRB) regulatory capital approach. This means they develop their own models to calculate their regulatory capital requirements and must then get them approved by the Reserve Bank. All other banks, including Kiwibank, run what's known as the standardised approach where the Reserve Bank prescribes their requirements.

Just to reiterate for ANZ that's about $1.2 billion of capital held against total mortgages of $57.5 billion.

ANZ has an exposure-weighted risk weight on residential mortgages of 24%. Read more

In a new report, S&P has downgraded its Banking Industry Country Risk Assessment (BICRA) for NZ's banks by a notch, dropping it from 3 to 4, on a scale where 1 is the lowest risk and 10 is the highest risk.

"In our opinion, economic risks facing financial institutions operating in New Zealand have heightened as a result of continued strong growth in residential property prices nationally," S&P said in its commentary accompanying the report. Read more

Deputy RBNZ governor Grant Spencer had this to say.

The Reserve Bank sets its risk weights in accordance with the international standards set by the Basel Committee on Banking Supervision, adjusted to fit the New Zealand context.

Indeed, risk weights on housing lending in New Zealand are relatively high by international standards, the average in New Zealand being almost three times that of the Canadian average or around 1.5 times that of Australian or UK banks, according to a recent International Monetary Fund study. So the NZ regime does not favour housing lending compared to international norms.

Basically, move along - nothing to see here.

But given Deutsche Bank's current crisis, maybe there is more to see than we think.

Rather than update and retrain examiners for modern money, regulation was left largely to the banks themselves. Politicians and "experts" didn't believe that was the case, of course, as that was the whole point of moving to the math. In other words, by instituting "constraints" like capital ratios it was believed that banks could do what they wanted to do while still allowing for a relatively solid determination about whatever that might be. If regulators couldn't understand and appreciate how they were getting funded (the liability side) then at least they would track what banks did with all that funding regardless of where it came from. Read more

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Stephen, any idea how much capital ANZ have against their customer's savings?

Unfortunately renting doesn't allow me to have a dog, garden etc so I'm stuck holding a lot of cash while I search for a house. Wonderful time for young people they have the choice of being a debt slave or a renting serf.

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No. We had a third choice but we either didn't vote or voted for don key

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Sounds like you aren't enjoying your 'brighter future' very much.

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