A net 27% of respondents to the ANZ Business Outlook survey expect weaker conditions in residential construction, while the employment outlook in the sector is now at a 10-year low too

A net 27% of respondents to the ANZ Business Outlook survey expect weaker conditions in residential construction, while the employment outlook in the sector is now at a 10-year low too

Sentiment in the residential construction industry has plummeted again to a new 10-year low in the latest ANZ Business Outlook survey.

There was little obvious sign of any 'feelgood factor' emerging in the first of these surveys to be conducted since the Government torpedoed any plans for a Capital Gains Tax.

ANZ chief economist Sharon Zollner said the "main red flag" in the survey is residential building intentions.

"These fell sharply yet again. The signal is no longer isolated to this one data series – employment intentions in the construction sector also fell. The fall came despite the ruling out of a capital gains tax.”

The latest survey showed a net 27% of respondents expected weaker conditions in residential construction in the year ahead, which is a fresh 10-year low for the survey.

And the sentiment is spreading to employment intentions, which fell to their weakest level in the construction sector for 10 years also. Employment intentions in the construction sector fell from flat to a net 22% of firms intending to cut jobs.

"What to make of it? New Zealand needs more houses, but the construction sector is facing cash-flow and credit constraints," Zollner said.

"Despite the small sample, the data has been a pretty good indicator and suggests significant downside risk to the residential investment outlook."

Slightly brighter news was in the survey's "headline business confidence" figure, which lifted 6 points, with a net 32% of respondents reporting that they expect general business conditions to deteriorate in the year ahead.

Firms’ expectations for their own activity lifted 2 points to a net 9% expecting a lift. Other activity indicators were a mixed bag.

“Most ANZ Business Outlook activity indicators were little changed in May, at levels consistent with the slower growth the economy is experiencing,” Zollner said.

Here are some of the main points in the survey:

•      A net 3% of firms are expecting to lift investment, up 1 point.

•      Employment intentions fell 4 points to 0. Capacity utilisation rose 1 point.

•      Profit expectations rose 3 points to a net 10% expecting profit to decline.

•      A net 36% of firms expect it to be tougher to get credit, down 1 point.

•      Firms’ pricing intentions lifted 2 points to +29%. A net 50% of firms expect higher costs, led by agriculture. However, inflation expectations fell to 1.81%, the lowest since early 2017.

•      Residential construction intentions fell sharply again despite the ruling out of a capital gains tax. Employment intentions in the construction sector also fell sharply, to their lowest level since 2009.

•      Commercial construction intentions fell 12 points.

•      Export intentions fell 2 points.

“The economy has cooled considerably over the past couple of years," Zollner said.

"The ANZ Light Traffic Index suggests weakness will continue to mid-year. Beyond that, the lower exchange rate and interest rates should see momentum recover, assuming the global outlook and the terms of trade do not deteriorate. But how quickly the economy will bounce back is a key question.

“If the forward indicators start to suggest that the Reserve Bank’s relatively sharp V-shaped recovery is overly optimistic, it will be game on for further [Official Cash Rate] cuts this year.”

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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"Residential construction intentions fell sharply again despite the ruling out of a capital gains tax." Let me guess, this is somehow going to put downward pressure on house prices?

You've got cause and effect backwards. Why do they not intend to build.. because the buyers aren't there to buy what they build at a price they can make money off. The prices are already falling :)

Exhibit A.

Do you at least acknowledge it will mean less houses built? If you can figure out a way to claim this will mean a massive oversupply of houses I will take my hat off to you.

There is already a massive oversupply ..on price. 1,000 people chasing one house which is at a price no one can afford = an oversupply of one.

Now take your hat off.

There is also a massive undersupply of 10c avocados. Your comments are excellent parody, so I take my hat off for that.

Might mean less houses built, we'll have to see how reality tracks vs "intentions". I seem to recall there being lots of posts about how we are already at max building capacity and have a back log now that Auckland council has put effort into clearing the backlog of consent applications. Then there is also the State housing and kiwibuild contracts that can soak up capacity to get those programmes back on track (as much as I wish they would drag kiwibuild out to the paddock and put it out of its misery.)

Don't waste your time BLSH, just be wealthy and happy and let the others be right and poor

Sounds good to me Yvil

Yes.
In a rising market, developers know the product they are building and selling will probably be worth 5-10% more when it was built as compared to when construction commenced.
Things are very different in a dropping market. Also, in a dropping market the prices of existing properties start to look better relative to new builds.

In the current Auckland market a reduction in residential construction will probably cause downward pressure on land prices. The house itself should go up in value (since less houses are to be built), but the land value might well crater. Overall property price change will depend on how much house is on the land.

I love how the Residential investment is moving away from 'intentions'.. survey vs reality!!!

In my region there is a sharp increase in both projects and volume of residential construction with building consents being worked on right now. I am feeling completely overworked right now which is unusual for this time of year.

Other regions may vary substantially.

Hence my comment above dictator.

There are a number of small time builders that are finding it hard to adjust to the changing industry which could be the reason for the fall in intentions, but I notice a number of bigger projects kicking off

The Auckland region makes up roughly 33-40% of all building consents issued across the country. So a lot of what these national surveys and indices signal may be skewed by trends in that region alone.

It's like house price movements. Auckland leads, the rest follows (typically)
Soon most regions will have price falls, and just like Auckland that will be one factor that slows residential construction.
Which region Dictator? Queenstown?

20 months after the left-led government took office:
- A net 27% of respondents expect weaker conditions in residential construction,
- The employment outlook in the sector is now at a 10-year low too
- A net 32% of respondents report that they expect general business conditions to deteriorate

It's got very little to do with the current government, it was heading this way anyway.
In fact, I know of a few projects that wouldn't have survived without Kiwibuild.

So we're pissing money down the wall propping up these developers of housing that nobody is going to buy. Oh well. It might well help tank prices of new kiwibuilds even faster once prospective buyer realise anything unsold is likely to end up govt owned and part of the state housing pool.

I'm not saying it's necessarily good, but I do know it has propped up a few projects.
Which is not without merit, in terms of preventing job losses etc.

Yvil, I wouldn't recommend you read too much into such surveys.
For one, most businesses have for many months been less confident about general business conditions than they are about their own activity.
Also, the pessimistic responses could majorly be from low-value (zombie) businesses that are most exposed to changing trends like higher minimum wages, tightened visa rules and the waning business cycle.

I've been saying for at least 6 months that the residential construction sector is in freefall, regardless of the CGT nonsense. So this is not surprise at all.

"What to make of it? New Zealand needs more houses, but the construction sector is facing cash-flow and credit constraints," Zollner said.

This commentary is a bit average. Cash-flow and credit constraints are certainly part of it, but the biggest problem is unaffordability and the profound crisis we have with land and building costs. As I said yesterday, there is a limit as to how many mugs will buy (or can afford to buy) a 700K two bedroom townhouse on the outskirts of Auckland. But to be fair to developers, these are prices they NEED to sell for once cost inputs (land, construciton, infrastructure, council fees etc), are factored ,along with a profit margin and GST.

Something needs to give and Auckland has opened up a whole lot more land supply. Might be a good time to buy a section by this time next year.

Gee, that drop is heading to the days of the mezzanine finance company collapses, which preceded the GFC (a nasty 'double whammy' anyone in the game will remember from 2007-2009)
Hold on tight

This should be headline news stuff, seriously. The construction sector and all its associated fields is a big part of the NZ economy. Scary.

The property market is doing just fine in most parts of NZ!
We are in great hands with our Housing Minister leading the way.
He blames the fact that KiwiBuild is such a flop on the WEATHER!
We aren’t even into winter yet, and just come out of a great Summer and yet the WEATHER has been a reason for the pathetic no. of so-called KiwiBuild houses!!
Reality is that of the so-called 83 houses stated as having been built thru KiwiBuild, I would say they were already being built anyway.
Probably no extras whatsoever and now he is buying houses that can not be sold on the open market.
It isn’t even funny what is going on, but just a continuation of the failures in regard to all the other policies that the coalition campaigned on!

How about the gobbly-gook jargon - KiwiBuild RESET
ha ha

Less houses built and lots of immigrants moving to NZ will support house prices.

Oh if only it were that simple.

It is, just contemplate the opposite, if there was a record number of new houses built and a net loss of people out of NZ, commenters here would say houses will crash another 40%

See below. So you think big job losses that could come from a big drop off in house building is good for the housing market? You think lots of immigrants will keep coming to a country with rising unemployment?
Also, the house building market usually follows house prices downwards. So house building drops, and prices drop. It happened here in 2008/2009, it happened in Ireland etc etc. One affects the other.

Where I find some agreement with you is that it might be a factor in the market shooting up again, in maybe 2-3 years.

You may want to look at the permanent residency visa approval levels.. declining every year for the last three years, and another decline on the cards for this year.
52,052
47,684
37,984
and this year is tracking towards ~31,000.

(Cue head being buried in sand in 3, 2, 1...)

Yes.
And if house building drops a lot, we could see some quite significant job losses, which won't help the housing market.

I am not sure how the ANZ run this survey but in Auckland region houses are going up everywhere, the car dealers cant get enough tradie utes and vans and it is almost impossible to get hold of a tradie as they are booked up well in advance.

Yes, but it's what happens next which the survey is addressing. It's based on forward intentions, not current project commitments (which may end soon)