The amount of building work being undertaken continues to increase, even as cost pressures rise.
The latest Value of Building Work Survey by Statistics NZ estimates that $8.413 billion of new building work was commenced in the second quarter of this year.
That was up 9.1% compared to the first quarter and up 18.7% compared to the second quarter of last year.
It included $5.802 billion of residential building work, up 8.6% compared to the first quarter and up 20.5% compared to the second quarter of last year.
Another $2.611 billion of non-residential building work was commenced in the second quarter of this year, up 10.3% compared to the first quarter and up 14.8% compared to the second quarter of last year.
However much of the increase in the value of work was driven by rising costs rather than an increase in activity, with residential building costs rising 4.2% between the first and second quarters of this year and non-residential building costs rising by 3.6% over the same period.
When the effects of those cost increases is removed, new residential building activity increased by 3.2% in the June quarter compared to the March quarter of this year, non-residential building activity was up 1.6% over the same period and overall new building activity was up by 2.6%.
In the year to June 2022 the total value of building work commenced was $30.92 billion, up 12.4% compared to the year to June 2021.
Over the same 12 month period residential building costs increased by 17% and non-residential building costs were up 11%.
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18 Comments
When you measure the increases in dollars I guess the true mechanics of the industry are hidden somewhat behind massive increases in building costs. I can't for the life of me see how the construction industry is heading for anything but a large decline? Cost of building is insane/unsustainable, cost of borrowing rising, high inflation, property falling???
There's been less projects being completed over the past 2 years, and a lot of excess demand in non residential construction that hasn't even broken ground yet. A lot of activity in the construction sector is years in the making so doesn't directly correlate with whatever current housing crisis is going on.
Because it takes so long to build in this country (we are already at year 2 and about to start), this data will lag quite significantly. The real pressure will hit next year as all of us building start having to pay the bill.
This gels with me. A bit of the ol' lagging data phenomenon.
Lagging indicator: the price drop is more recent but developers commencing projects in the June quarter would have locked buyers in on late-2021 early-2022 peak prices.
High building costs would put a small dent on their crazy margins but far from losing confidence in planned projects.
A townhouse project in my neighbourhood broke ground in mid-June. They are twelve multiple 1 to 2-bedroom boxes where a 3-bdr house nicely sat, all sold in the $750-920k price range. No parking, no common facilities, only enough outdoor space to store your council bins.
At those ridiculous prices, a double-digit uptick in construction costs would be better classified as mild inconvenience to the developer.
A townhouse project in my neighbourhood broke ground in mid-June. They are stacking multiple 1 to 2-bedroom boxes already sold in the $750-920k price range. No parking, no common facilities, only enough outdoor space to store your council bins.
Like watching a procession of innocent sheep to the slaughter
That's right - and to extend your analogy, the procession is being led to the slaughter by the government trying to spruik up the economy on meat exports.
Once this lot is all chopped up, they will bring in more sheeple from overseas.
I posted this before but popn Ponzi countries Aussie and Canada have performed less well than Japan on growth in per capita GDP since the GFC. NZ has outperformed all of them.
https://cis.org/Camarota/There-No-Evidence-Population-Growth-Drives-Cap…
Such a small difference can be written off on the basis of low-base effect - our per capita GDP is 15-20% smaller than theirs.
Also, will be interesting to see how much of that "growth" is just the oversized housing sector within each of those national economies. We might actually find out early to mid next year.
I think we can safely assume that Japan's GDP is more weighted towards industrial and manuf output. Maybe not as great as one may think.
If prices drop sufficiently, buyers have an incentive to forfeit their deposit rather than stick it out on a vastly overpriced asset.
Yep but on a 10% deposit that will still often be a very decent chunk of money…
And the developers will sue them for specific performance, so there is a bigger incentive to settle regardless.
Yep so that is going to be part of the last round of building in this mad bubble. As I have said before, this is the last role of the dice, there will be a large number of completions in late 2022, then it’s going to start falling away in early 2023.
Purchasers signing up for those would have been purchasing late 2021 when:
- price falls hadn’t really started
- interest rates had not yet risen much
'twelve multiple 1 to 2-bedroom boxes where a 3-bdr house nicely sat and only enough outdoor space to store your council bins.'
If you want a laugh, turn up on bin day, and see them competing for curb space with pedestrians and all the cars trying to find a parking spot due to no on-site parking.
As a long term property investor, I am currently building three rental houses. Material costs increased for a while. One is almost ready for its final inspection, one has the roof going on next week, and the other one is almost excavated, hit a bit of hard rock in one corner. Might have to redesign the founds.
There was an intial lag in price rises, for example aluminium joinery prices were slow to react to increasing spot aluminium prices, then it took off, and now it seems to have stabilised, but not dropped.
The same applied to concrete, and steel. As long as labour doesn't take off, we will carry on, but if they do, we will do the work ourselves, and finish them one by one.
New Zealand’s construction industry is feeling the financial crunch, with a disproportionate number of liquidations and rising number of credit defaults in the sector, according to new figures.
According to an insolvency litigator, dozens of property developers are also trying to back out on deals worth millions of dollars as those projects are no longer as viable due to increased costs and sliding land values.
https://www.newsroom.co.nz/dark-days-continue-for-struggling-new-zealan…
Thanks for that link. Yep it’s well and truly started, just as I predicted from early last year.
By this time next year the sector will be in an almighty slump.
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