Building consents lowest in 15 mths

House building consents fall to lowest level since July 2009

30th Nov 10, 10:55am by Alex Tarrant

By Alex Tarrant

Seasonally adjusted housing consents, excluding apartment units, fell by 1.1% in October from September to their lowest level since July 2009, Statistics New Zealand said today.

This was the fourth consecutive monthly fall in consents, and the eighth monthly fall in the last 12 months, on the back of a cooling housing market and weak economic recovery. This has led some economists to push back expectations of the next hike in the Official Cash Rate to June 2011 from March.

Westpac and ANZ economists had expected consents to be broadly flat in October from September, while BNZ economists had said there was a risk consents would hit “even uglier levels” in November. ~~October~~.

Seasonally adjusted figures show 1,096 building consents for houses were issued in October, down 1.1% from 1,108 in September.

Including the volatile apartment category, there were 1,154 seasonally adjusted dwelling consents during the month, down 2% from 1,178 in September.

“Looking at the longer-term trend, the number of new housing consents authorised, excluding apartments, has fallen steadily in recent months and has declined 20% since March 2010,” Government Statistician Geoff Bascand said.

“When the volatile apartment category is included, the trend is similar, declining 18% since April 2010,” Bascand said.

Unadjusted figures show house consents were down 16.8% to 1,099 in October from the same month a year ago.

Including apartments, the number of dwelling consents fell 21.1% to 1,123 over the year.

Unadjusted figures show the value of residential building consents was NZ$415 million in October, down 14% from NZ$481 million the same month a year ago, Stats NZ said. The value was also down from NZ$450 million in September.

The trend for the value of residential consents has been falling since May this year.

The value of non-residential consents was NZ$272 million in October, down 17% from NZ$329 million over the year. It was down from NZ$365 million in September.

Consent values in October 2010 included the increase in GST, which was raised from 12.5% to 15% on October 1.

It was not possible to separate the impact of the GST increase on building consent figures from other factors, Stats NZ said.

Canty quake to help, but rest of country to stay low

Economists are pick the Canterbury earthquake to lift building consent numbers over the nest year, although JP Morgan's Ben Jarman pointed out that earthquake rebuilding had yet to wash through to consent numbers:

Despite today’s disappointment, we maintain our conviction that earthquake rebuilding activity will eventually be captured in stronger building permits and construction data. Yesterday’s NBNZ business confidence index – which showed that firms’ expectations for the economy and their own business improved substantially in November – appears to have heavily been influenced by the outlook for building activity. Indeed, the net balance on residential and commercial construction expectations in the NBNZ survey both increased by more than 20%-points. As such we remain confident that some near-term gains will be registered in permits.

Aside from this near-term rebound, the outlook for the construction sector, particularly on the residential side, is not great. The trend in new dwelling authorizations is 46% below its previous peak at June 2007, and amid reduced appetite for housing leverage and soft dwelling prices, the sector is unlikely to be able to transform the earthquake jump-start into any lasting recovery.

ASB economist Chris Tennent-Brown said excluding Canterbury, ASB's forecasts contained a weak outlook for the construction sector:

With weak population growth and a low level of activity in the housing market, there is little in the way of a catalyst beyond the earthquake to stimulate a pick up in residential activity. The RBNZ outlook in the September MPS included weak business investment forecasts and cautious households. We expect this to be reinforced in the latest RBNZ forecasts in the December MPS. We do not expect the RBNZ to resume the process of returning monetary conditions to normal levels until March 2011.

The chart below is for unadjusted dwelling consents, including apartment consents.

See here for our charts of dwelling consents by type.

(Updates with economist comments, chart.)

Building consents - residential

Select chart tabs

Source: Statistics NZ

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23 Comments

by bob | 30th Nov 10, 12:28pm 1291073336

Why must they be 'fringe' sections?

These require a whole set of new infrastructure - like 3km's of roads, wiring, water, sewerage etc. for 150 houses which is payed for by developers (added to section prices) and then becomes vested in council and becomes a cost to rate payers to maintain. Local roads alone cost $1 Billion a year to maintain.

$40k to $60k serviced fringe sections would require someone to make a loss and add more stuff to pay for maintenance of.

Why not a bit of density where services and roads already exist? A higher ratio of dwellings to services/roads is a much more rational way to develop.

by Chris_J | 30th Nov 10, 2:01pm 1291078866

Hugh, that is silly talk.

The cost of doing the physical work of subdivision, constructing roads and installing services for even the most basic flat greenfields site is likely cost above $40,000. Let alone council fees and levies which in say Christchurch would be about $30,000.

So you're at $70,000 before paying for the land or the developer making a margin.

This puts the cheapest sites possible at around the $120,000 mark - which is what sections are selling for in Rolleston and Rangiora. (Since you're from Christchurch Hugh, I've given some local examples.)

Sites on the city fringe have also been selling at these kind of levels via mortgagee, receiver etc but open market sales for cheap (new subdivision) sites in Halswell, Wigram, Belfast, Linwood/Bromley are around $150,000 upwards.

Fantasising about someone producing something just so it can be sold below cost won't fix anything, Hugh.

The only way to significantly cut cost would be to cut council levies to zero and remove all planning restrictions so that the market is flooded (if it wasn't already) with sections sold at cost - but even in this situation prices would be around $90,000 upwards per section - not hugely less than where the cheapest sections are right now.

Only in places where the existing infrastructure exists or where the development levies are near zero and the market is flooded do we see cheaper sections - say in Te Anau (new sections below their 2005 cost from around $70,000), Dunedin (new subdivisions from around $100,000 because of no development levies), existing sections in Dunedin, Invercargill and many small towns etc from $20,000 (or even $1) which were developed decades ago and never built on.

by petrus | 3rd Dec 10, 11:17am 1291328258

If I were given the bare land for nothing it would cost around $40,000.00 to develop a site. On top of that add selling commission,marketing & cost of funds. Finally - how about some profit??

So - with no cost of land that takes the price to about $55,000.00. Now - add the cost of a house; now it looks like this

House (brick & tile) 190m2 $197,750.00

Section $ 55,000.00

Carpet/Vinyl $ 9,000.00

Drive/patio/path 80m2 $ 6,000.00

Letterbox/Clothesline $ 500.00

Basic lawns $ 2,500.00

Drapes/Blinds $ 2,500.00

Total $ 273,250.00 - inc. gst

Does not include Real Estate commission; house = brick & tile,4 beds,2 bath, heatpump.

Assumes level section with firm bearing.

The problem is - no one will give us the land for nothing!

by Christov | 30th Nov 10, 11:20am 1291069214

The number of bribes being offered to city officials probably correlates to the reduction in consents accordingly.......after all why throw more bad money at a bad idea..?

by Wolly | 30th Nov 10, 11:35am 1291070138

This is a healthy sign for the economy....the market demand for new homes has fallen to a new normal level...this is where it should be...people save more and borrow a dam sight less...property prices are forced down....all we need now is for govt to end the property benefit game and we might see a future.

by Gummy Bear Hero | 30th Nov 10, 11:48am 1291070900

Hmmmm , Olly Newland called it ! Right again . Smart fellow ............. Little wonder that he's the rich guy , and many here are wannabes who snipe at him from the sidelines .......... Well done , Sir Olly ! ............... oooooooooops , sorry Bernard , house prices are not to fall 30 % .......... 15 % , anytime soon .

by hamrod | 30th Nov 10, 12:27pm 1291073222

Maybe not any time soon, but all things being equal we'll probably have another 5 years of gradually decreasing prices... or maybe interest rates will rise and there'll be another round of mortgagee sales.. who knows.. certainly not Olly Newland. The options over the medium term are either no growth or negative growth.

by kane02 | 1st Dec 10, 12:10pm 1291158614

couldn't agree more. well said!

by Chris_J | 30th Nov 10, 5:01pm 1291089681

Hugh, with all respect, the cheapest advertised sections near Adelaide are around $90,000 for very small 300m2 sites (similar $ for $ to NZ). I imagine that creating sections there for $50,000 would have to involve some kind of government incentive (subsidy) whether that is waiving fees or rezoning large tracts specifically.

Reducing council levies would be the best way to reduce costs as many are unfair and exploitive, however there is no way sections could realistically be developed in Auckland, Wellington or Christchurch at the levels you suggest without government handouts - which most people here would agree is just wrong.

In Wellington the land simply does not exist within any reasonable distance of the CBD to provide cheap easy to build on sections. In Auckland the only land available is also a substantial distance from the CBD and highly unlikely to be occupied by brand new $150,000 homes even if large tracts were rezoned.

There is simply no logic to your argument. Undeveloped residential land is currently the cheapest it's been for 6 or 7 years (thanks to a massive subsidy by finance company debenture holders!). Sections in suburban ChCh subdivisions have sold as low as $90,000 by mortgagees, yet we haven't seen any total cost $200,000 new homes (freestanding family size homes) built - the homes built are more like $320,000 plus. Including finance costs and a margin, you simply can not build a quality house for the prices you talk about. You may build a 90m2 basic box for $120,000 all up (landscaping, basic garage and permits) however this is not of a standard that new home buyers want.

If you believe you can build a house for that kind of price a make a profit, then why not project manage one yourself. In theory you could find a site for say $20,000 in Dunedin or Invercargill or $45,000 in Timaru, maybe $90,000 in Christchurch, spend $100,000 building a house. If you're right at worst you will make a substantial profit (at least $100k) and dispel your critics.

In reality you will realise that costs have increased significantly and that it is not building the shell of a house that determines the cost but all of those unseen incidentals that add up to many tens of thousands of dollars, including things such as sales fees, holding costs, fences, drives, services etc etc.

Obviously you have not been involved in construction any time recently. A quick scan of the LINZ database suggests that since it went electronic a number of years ago now, the only properties that you have been involved with are leasehold commercial properties in Tainui and Mackay Sts Greymouth, I apologise for rudeness but do you offer anything other than supposition in your view that houses can be constructed for these prices. If you do believe than can be built then as I suggested previously - why not do so on one of these sections so happily being given away by receivers at perhaps less than half of its cost price 3 years ago?

by Matt in Auck | 30th Nov 10, 3:31pm 1291084285

"With weak population growth and a low level of activity in the housing market, there is little in the way of a catalyst beyond the earthquake to stimulate a pick up in residential activity"

this from a bank economist?

I thought they were all saying there is a massive undersupply of housing?

by muzza | 30th Nov 10, 5:41pm 1291092105

Gummy, Ollie is too extreme on his angle just as Wolly is too extreme on his angle, remember the truth is usually half way in-between Olly and Wolly.

And, if Chris J is right in his findings about Hugh Pavletich, what credibility does he have with his 'solutions'? Incidentally some months back when having lunch with the mayor, I ran HP's ideas by him and he mentioned exactly the things Chris J has indicated.

by Gummy Bear Hero | 30th Nov 10, 5:57pm 1291093078

muzza :

Uncle Olly is extremely rich ................ Wolly gathers drift wood off the beach to burn .

You figger out whose advice suits your aspirations !

by Wolly | 30th Nov 10, 6:42pm 1291095730

I don't see Muzza finding that one too hard Gummy....Muzza is into material things....I'll stick to the hardwood on the beach and the gold in the hills, the smell of Kanuka in flower and not having to work....finding rare books for peanut prices and being able to watch Messi dance his way through to score every time...having the freedom to aim the camper any way the weather allows with a fridge full of grog and grub.

by muzza | 30th Nov 10, 6:20pm 1291094451

Hugh the world changed from the 60's. Until then, basically costs reflected the one income 'breadwinner' household. We have more women these days attending university than men and the dual income situation now is the reality. In the '80's the cash chased the stock market. After the crash of '87, dual income yuppies turned to property and worked out the often huge loans they could service. Whereas once property prices reflected a sole income they now reflect a double income, that's the reality. And I didn't need the mayor (of a main urban centre) to tell me that.

by Nicholas Arrand | 30th Nov 10, 6:47pm 1291096071

I repeat my re-post to you on an earlier thread: We have always needed two income to get into a home! Today's world is nothing new. It's just that it takes twice as much to service the debt. But you're are right about the 'huge loans' that have been taken on to acheive excatly the same thing as years earlier....and that is going to come home to roost.

by Gummy Bear Hero | 30th Nov 10, 6:21pm 1291094469

NZ building consents fall 1.1 % in October , from September ,

Australian building approvals rise 9.3 % in October , seasonally adjusted .

.......... A tale of two economies !

by Gummy Bear Hero | 30th Nov 10, 10:01pm 1291107719

According to the Sydney Morning Herald article that I read , the building approvals in Australia was spread across the spectrum . It noted that the figure included many family homes ( multi-person dwellings ) .

So much excellent economic news in the world today , that I'm positively fit to burst out of me Gummy Bear mankini ........... ooooh , la la ........... yahhhhhhhhhhhh !

by iconoclast | 30th Nov 10, 6:51pm 1291096275

Slow down. There appears to be a disconnect in this debate. Data releases over the last 4 - 5 months suggest new homes sales are running at about 10,000 per annum, suggesting that family formation is about 10,000 per annum. Net immigration into NZ of 10,000 (people not families) per annum comprises some of the 10,000 new family formation. Dwelling consents running above 1100 per month are meeting those needs, and could be interpreted to mean the past consents and new dwelling constructions over the past year have exceeded requirements, or dare I say demand, and is now (slowly) coming back into equilibrium. 1% decline is slow. The above consents and constructions do not include apartments.

What is the inventory of unsold new homes?

by iconoclast | 30th Nov 10, 7:36pm 1291098962

Yes - in the US they publish two data series - New Home Sales and Inventory, and Existing Home sales and Inventory - do we get that information supplied?

by muzza | 30th Nov 10, 7:33pm 1291098813

Wolly, I too enjoy the great outdoors and live near the beach. Climbed Mt Taranaki last summer, but won't repeat that! Enjoyed 10 weeks in Europe/British Isles mid-year, so we are not hell-bent on the treadmill. Material things only useful for producing a passive income to enjoy, and don't have an overly expensive house to live in. Think you might have had it summed up a bit wrong.

by Wolly | 1st Dec 10, 6:57am 1291139860

Sorry bout that Muzza...thought you were keen on stuff...and on the old coots paying for it via less pension dosh.

by Matt in Auck | 30th Nov 10, 9:16pm 1291104980

this is just further evidence that the NZ economy is still far from rosy

Good to see the NZIER's realistic forecasts today of a nudge over 2% growth in 2011 versus the consensus view around 3%+

Listen to these guys NOT THE BANK ECONOMISTS

by Wolly | 1st Dec 10, 7:13am 1291140788

"Registered Master Builders Federation chief executive Warwick Quinn said the industry was contracting and could soon be in a worse position than during the recession. Commercial and public sector work, which held up during 2008 and 2009, was now falling.

"We are not far off returning to the 65-year low experienced in March 2009 and with the non-residential sector also under pressure, the industry is arguably in a worse state now than it was last year."

Mr Quinn said thousands of tradesmen had left the industry since the economic downturn began. Unless there was a pickup soon, New Zealand may not have the capacity to cope with demand when the economy improved.

"The longer this goes on, the more difficult it will be for us to recover, because we just won't have the skills in the industry."stuff.co

Warwick will in time come to accept that the current level of activity is the normal level to be expected.....the credit splurging madness of the Labour era of stupidity and waste..are not going to return. Planning should revolve round that...to expect a taxpayer funded public sector burst of building activity would be foolish.

I have for two years been making the point that Noddyland had entered a very long recession or a bloody good depression...the latter would have hurt more for a shorter period...govt opted for' time and hope' and so you have less pain for a dam sight longer.

The euro piigs fiasco has yet to run its course and on the journey Noddy debt will start to cost a good deal more..S&P have warned of this....it will happen. The USA is stuffed beyond understanding and they will need the Simpsons programmes to help the stupid public understand why they are hitting the wall....at high speed....without airbags....in a Ford...driven by a drunk.