Residential building consents slump in August but earthquake boost expected

Residential building consents slump in August but earthquake boost expected

Residential building consents, excluding apartments, fell 8.9% in August on a seasonally adjusted basis to their lowest level since July last year.

Statistics New Zealand said 1,142 consents were issued during August, the lowest monthly level since 1,095 were issued in July last year.

When the volatile apartment sector is included,  the seasonally adjusted number of new housing units authorised fell 18% in August to 1,185, also the lowest level since July 2009. This follows a downwardly revised 2.4% (from 3.1%) rise in July, marking the first decline in three months.

"The shocking August result, combined with the downward revision to the July number, suggests that residential investment is tracking a lot lower than we had penciled in for the third-quarter," JP Morgan economist Helen Kevans said.

"Further, the tumble in permits can only partly be explained by the volatile apartments category, as permits ex-apartments fell a sharp 8.9% month-on-month."

Statistics New Zealand said without adjusting for seasonal effects, consents were issued in August for 1,229 new housing units, including apartments or 1,193 new housing units, excluding apartments.

The value of consents issued for residential buildings was NZ$473 million, up 7.6% from August 2009. In contrast, the value of non-residential buildings was NZ$296 million, down 23%.

"Looking at the longer-term trend, the number of new homes consented, excluding apartments, has been falling since March this year," business statistics manager Louise Holmes-Oliver said.

"This follows increases that began in April 2009, after the recent economic downturn."

Meanwhile, Kevans said permits could increase into the year-end, due to the impact of the September 4 earthquake in Canterbury.

"This suggests that residential investment should continue to recover in 2011 from a long running decline," said Kevans "Residential investment spiked 11% quarter on quarter in the second quarter, having risen only modestly in the previous two quarters. Slower net migration and higher interest rates will, however, cap the upside."

ASB economist Chris Tennent-Brown said from September onwards consent data would be significantly affected by the Canterbury earthquake. 

"We expect the earthquake will initially lead to a slight drop off in consent issuance in September while Canterbury faced disruption, and then the reconstruction phase should see a pick up in activity," Tennent-Brown said.  

He noted that in its September Monetary Policy Statement the Reserve Bank significantly lowered its growth expectations for the economy due to weak business investment forecasts and cautious households. 

"Today’s building consent data are consistent with this view, and our own weak construction outlook.  We do not expect the Reserve Bank to resume the process of returning monetary conditions to normal levels until March 2011."

For the year to August, 16,460 permits were issued, or 15,523 excluding apartments. Total consents, though, are still well down from their June 2007 peak, when monthly consents pushed towards 2,700.

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37 Comments

Down here is the new normal building activity...get used to it.

Likely as not most of it is taking place in the Auck region.

So out in the regions matters are in a state of ....well what can we call it?

Expect September's number to be the worst on record.  It will be months before anyone in ChCh has permits for whole new buildings issued, let alone building work starting.

Yup, speaking from personal experience here in Christchurch, even getting a LIM has taken weeks.  The council buildings are damaged and at least some people are working from other offices.  What with people without sewerage and other infrastructure issues, lower priority tasks like consents will surely be side-lined.

I'm not sure many people are aware but there are numerous industries on go-slows at the moment.  Insurance companies have a 21 day stand-down clause for earthquakes on any new policies.  Banks will not lend money on home purchases unless the houses are fully insured.  Oops, no loan from the bank!  No loan from bank, no property purchase.  Mortgague lenders, real estate agents and property solicitors will have had an extremely tight month.  It's far from over either - heck there are parts of main streets like Manchester St still blocked off with no foot traffic alowed even.  Any shops in these zones will have zero income since the quake, and continuing on utill who knows when.

Housing shortage is soon to become critical

You're right! Critical oversupply, as potential immigrants by-pass us; what's left of our workforce, young and old, and those displaced in Christchurch head off to Aussie for a lifestyle that we think we are entitled to. This country is going to be awash with the unsold property of those fleeing before it's too late. ( 'I'll rent it, till the market improves" Right...)

Housing shortage!?! Not a hope in hell. The kiwi hit a ten year low against the Oz dollar today, and this is just the beginning. The exodus of young kiwis and families to Oz is about  to surge, the next few sets of data will have the government worried. We are off early next year, will double our salaries and enjoy the sunny lifestyle in a booming economy. Housing shortage, this time next year the goverment will be begging Oz to change the open boarders policy.

Oh excellent. This must be great news for Bernard. The incessant campaign on this site  against the property sector is working a dream, as is the related xenophobic, protectionist stance  against overseas investment and hence immigration. Great stuff. We've finally successfully got rid of the building industry, including plumbers, sparkies, architects, contractors and all related trades, plus that large section of retail and wholesale sectors supplying the builders. Indeed, we're well on the way to getting rid of that evil result of unfettered capitalism known as prosperity and increasing  standards of living, period.

As the illiterate offspring of the welfare state would drunkenly slur: a resssullt.

Kim Jung Hickey for Big Papa in the 2011 elections, campaigning on the Big Step Backwards!

Mark is that you? I thought you had given up blogging etc after the pasting you took over the Hubbard affair?

Probably is - there can't be too many that far out to lunch....

Good call about bernard...  but with no beard left what can we call him?  he is tall though...

Reason for building consents being low is very tight bank finance - developers can get funding...  banks will happily lend you the money to own a house, but forget trying to get money to build a house for someone else...  

There is a shortgage of well priced housing in Auckland, but not elsewhere... and as for replying on a natural disaster to boost the stats...  FFS people!!!  Don't you see the stupidity in that???

The Duke has already departed . And now that Bernard has all but joined Cunny in the Labour party , and hung up the red flag , I feel the same . Why bother . Some clowns , quite alot of them , feel it is their right to be bailed out of their own stupidities , by the tax-payer . Bugger coming back to NZ , or to interest.co.nz .

[ Apologies for my strong language yesterday (SCF Investors thread) . My fault for allowing the clown to needle me . Gummy Bears are not thick skinned ! ]

Hey Hey ,,,quit that GBH....it's just jawing is all....don't amount to a hill a beans less somebody actually does somethin.....so cheer up because you can always bank on apathy..!

And never forgit.............Oblivion is the last refuge.

Cheers Count of Christov . Meebee the cold weather is getting to me . A bitter chill of 25'c on Panay Bay this morning .

Perhaps the shock of Bernard's new theorem of finance has unhinged my synapses . Coincidently both Bill Gross and Mohamed el-Erian of Pimco expoused the same " new normal " , but a week prior to Bernard's statement . And Ken Fisher ( my " hero " ) immediately labelled their central planning theory as " idiotic " . I agree .

And that's just the way we like you...! any thought worthy of consideration in these times should have it's mettle tested with extreme prejudice before it can even be considered worthy as an alternative.

It was a thoughtless post by DonnyMac....and on reflection he may have opted to edit....but what  the heck he bashes Wally  for .....no idea..

The problems are being caused by the people who think there are problems...all we have to do is think positive..! This is the new mantra. There are no debts. Banks are safe as houses. Houses are safe and always rise in value. Your wealth is safe in the bank.

Rebound in net migration (actually has been pretty strong and run rate is at long term average levels) plus lower residential building = lower supply = puts upword pressure on prices = rebound in volumes.  Early stages and repeat of the rebound in housing that took place from April 2009 through to December 2009 (and a bit of march 2010).

 

I am mainly doing this to wind people up - but it is also factually correct.  Or maybe the first sentence, the second is really to wind people up.

Wonder what time the fx dealer will scream out "sell" on the Kiwi this afternoon/evening....JK would know .....I think it was 7pmNZDST yesterday...!

Sure looking like a stuffed wee Kiwi ready for roasting to me...

The oven door will slam shut as soon as the EQ and storm costs are reported!

Hey Wally, some people here give you a bit of flack for your harsh comments, but personally I think you just say it as it is and have your finger very much on the weak NZ pulse. Keep telling it like it, I enjoy hearing your take on things. The NZD sure does look like toast against the AUD short to medium term. Banks here reckon 6 more interest rises to end of 2011 with perhaps 2 more being this year - that should maintain a healthy FX differential with NZD.

I moved over to Oz beginning 2008 and fully expected to be back in NZ maybe next year, but the way the NZ economy is shaping up, I don't think there is any rush to head back anytime soon. And those earthquakes are definately making me rethink long term resettlement plans to NZ.

Ta mate.....although I suspect everybody in the whole of Canterbury would be happy to keep their shakes and leave aussie with the snakes. I hear the aussie CG team arrived in Delhi and the Cobra did a runner.

Spruikers like Tony A will talk this up as a positive - the same old mantra about a growing housing shortage.

In fact, one of the reasons people aren't building is because property is not rising meteorically (along with other factors like lack of finance etc), but in fact is stagnating / dropping in value. The lack of building activity is more symptomatic of a sick property market than a signal of an ever worsening housing supply crisis.

Looking forward to Bernard doing Movember   

Tony A's prognostications on house prices , over the past 3 years or so , have been reasonably accurate .

Bernard's have not !

Tony A for the last few years: "BUY HOUSES! YA CAN'T LOSE WITH HOUSES! THE PRICE OF HOUSES ONLY EVER GOES UP!"

Bernard H and all other non-retards: "This property bubble is unsustainable and will eventually collapse, possibly at a very rapid rate."

See? Tony A was correct and Bernard H was not!

As I recall , Tony A. did not say that ................ I doubt that he ever gets  so excited as to cause so much as a ripple on his custard .............. But he did predict steady house prices , 0-5 % falls from the highs , each year ............. Jog my mammary someone , isn't that so ?

Dead right, Gummy Bear Roger,  TA's predictions have always been way closer to the mark than Bernards rants  ... I mean predictions!

People aren't building apartments in Auckland City because council changed the rules in 2006 so that a 2 bed would have to sell for over $500k.  There has not  been an apartment building built under the new PC2 rules and increased contributions - and that was before the GFC happened.  There used to always be around 800 CBD apartments for rent on Trademe - this year it has dropped to under 500.

There is no housing shortage in most of the country, but there must is in central Auckland - some suburbs are now worth more than they were at the 'peak'.

.

Patience Matt! Shortages and over-supply situations in property take years to eventuate, and once the crisis hits they take years to unwind again.

Anyone that thinks the current level of building and virtually non-existent rental investment will lead to cheaper houses and cheaper rents are in for a big disappointment, probably within a few years....

Murray - I agree.

Some time in 2-3 years the supply side WILL start to bite and then prices are going to rise again (albeit in my view in a manner a lot more moderate than 2001-2007)

But in the shorter term the lack of building activity actually underlines the overall poor lack of confidence in property / housing, and that will reflect mildly weakening prices over the next year or so where I think we'll see 2-3 % drops. 

Can't argue with that Matt.

The extent of the next boom is anyone's guess, though personally I think the RBNZ holding rates high in 2008 and the Governments depreciation changes this year were both several years late with their policies, and instead of curbing a boom they have worsened a recession which will subsequently add to the next boom...    mind you, they both have a great track record for adding to the boom/bust cycle with reactive policies rather than limiting it with proactive policies. The depreciation changes could prove proactive in the long term, but in my opinion it was poorly timed and any poorly timed policy changes run the risk of being reversed by subsequent governments....

can't see another boom like the last....mathematically its just not foreseeable, given the income / house price differential, and the fact interest rates will only rise from here

I suspect (but who knows) that the next "good" period for house prices will tend to amount to 5% per annum rises, way off the 10-15% per annum rises we were seeing 2002-2007 

So I'm sticking with my policy of renting for the next couple of years, building that deposit up bigger and bigger, then buying maybe around 2012-2013

By then prices will still be a bit lower than 2007 levels in nominal terms (but much lower in real terms), but I'll have a 30-40% deposit rather than a 5% deposit 

Glad I didn't listen to those fools back in 2007 who told me I was a fool for not buying because prices only go up up up in a straight line!!!!!

Very wise Matt but keep an eye on those progressive socialist 'we can run your life' idiot Labour lot who will promise the earth to get back to the pig trough and willingly hand the banks the go-ahead to trigger another round of residential property stupidity.

Do not think for one minute that the bank bosses will give a rat's about causing more damage to this economy. They would be in boot and all.

Yes, there are always periods where renting makes more sense than being a first time buyer, though not usually in the long term. Also for those that are already owners, it doesn't always add up to sell and buy in again later with the transactional costs and hassles of moving. I know many folk who sold out in the mid 80s and mid 90s and then left it too late to get back in again...   my personal preference is to ride things out, and as my equity and income have grown each recession has affected me less...

 

"can't see another boom like the last....mathematically its just not foreseeable, given the income / house price differential, and the fact interest rates will only rise from here"

that's assuming the interest rate cycle has bottomed out...  in many countries the trend has been for lower highs and lower lows until 0% is reached and then the QE begins bringing inflation and higher interest rates and around it all goes again. The RBNZ is already talking about a lower high for the next OCR cycle, which may well be followed by an even lower low and suddenly higher house prices are indeed "mathematically" possible - in fact they could be quite a bit higher and still cost the same to service as they do today...

it's all a bit of crystal ball gazing but quite feasible - wages steadily climbing - housing shortage steadily building - interest rates get slashed to help address the growing shortage and construction slump - and voila!, the combination of rising wages, slashed rates and housing shortage cause rapidly rising prices once again. It's happened regularly enough that I would never say never.... ;)

"...QE begins bringing inflation.." Not necessarily. Ask the Japanese who've been at it ( an still are!) for 20 years. A global tarriff/trade barrier  regime ( coming, in my view)  will put paid to international capital transfers, and there goes any hope of 'riding out' this property cycle. The trend, downward, for all discressionary asset prices will become entrenched. And; How about if as a small indebted nation we embark upon an unexpected period of wage falls ( a- la Ireland or many other Western nations)? A general cut in public sector wages of 10%+ ( as a Government cost cutting measure) would add an interesting factor to the mix! Can't happen? How much support is there for the teacher's current demands? I'd venture that the populace would welcome a cut in our public sector wages bill. 

I would never say never to your scenario either, Nicholas, although in that situation I look forward to the consistent 0% - 0.1% cash rate and 2 - 3% mortgage rates as per Japan!......

My view? They're coming, Murray! ( ultimately,OCR  zero %...and that's because things will be so globaly dire). QE is like chemotherapy; it's only used on a patient that will die of cancer, otherwise. It may (50/50?) save the patient, and in so doing probably destroy other vital organs, and they are never the same again. (NB: You probably don't really want lower interest rates, by the way; Higher interest rates = higher property prices - a $ supply/ demand thing. Lower rates =.....!  )

"Lower rates =...."  stagnant prices but also = stronger cashflows! The cycle seems to go something like 5 years of strong capital gains followed by 5 years of zero gains but stronger cashflow. Personally I prefer the better cashflow years. Capital gains look good on paper but cashflow looks good in my bank account!....  ;)

Murray, my point was not that higher house prices are not mathematically possible, my point was that a boom like the last one is not mathematically possible (OK, its POSSIBLE, but very unlikely)

Why?

Income / Price ratios at the start of the last boom were reasonably in line. they are now so far out of whack (ie. around 5/6: 1) that unless wages soared (possible, but unlikely), there's no way that house prices could boom again, as the raitos are at the limit of serviceability now

sure, if interest rates went close to zero it might partially happen again...but what are the chances of that happening??? Surely if a housing shortage eventuates and prices start rising interest rates wil rise again, creating an equilibrium

So cut  a long story short - I can certainly see prices rising again MODERATELY in a couple of years time, but nowhere near the boom of yesteryear - that was quite simply a once in a lifetime situation