First signs emerging of a downturn in construction activity

Property / news

Latest Statistics NZ figures suggest building activity peaked in Q3 2022 and started to decline in Q4

6th Mar 23, 12:02pm by Greg Ninness

The building industry is showing the first signs of a downturn, although it is continuing to operate at a cracking pace, according to the latest building activity report from Statistics NZ.

It found $9.327 billion of new building work was commenced in the December quarter of last year.

That was a record high and was up 19.7% compared to the same period of 2021.

However it was up by just $20 million compared to the September quarter of last year, suggesting a slowdown in the rate of growth.

Additionally, the building industry has been experiencing high inflation, with residential building costs up 13% last year and non-residential building costs up 10%.

When the effects of inflation are removed, the value of building work commenced in the December quarter of last year declined by 1.7% compared to the September quarter, with residential building work down by 2.0% for the quarter, and non-residential work down by 1.0%.

Those figures are provisional, but suggest building activity peaked in the third quarter of 2022 and started to to decline in the fourth quarter.

However in an industry facing capacity challenges, the effect of the small decline in activity evident in the December quarter figures may be having a minimal impact at worksites so far.

The inflation adjusted $9.15 billion of new work commenced in the December quarter was still up a healthy 6.7% compared to the same period of 2021, so the industry is not exactly sitting around twiddling its thumbs.

The comment stream on this story is now closed.

You can have articles like this delivered directly to your inbox via our free Property Newsletter. We send it out 3-5 times a week with all of our property-related news, including auction results, interest rate movements and market commentary and analysis. To start receiving them, register here (it's free) and when approved you can select any of our free email newsletters.

We welcome your comments below. If you are not already registered, please register to comment

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

26 Comments

by Pa1nter | 6th Mar 23, 12:33pm 1678059225

Its a funny crossroads because councils, suppliers and other parties are all in the process of increasing pricing for consents, standards, and materials, while new home sales are flatlining.

In the case of councils, their inflation strategy is to keep rates low and charging more for resource and development costs. I wonder if they've factored in lower volumes of fees for the next 12-24 months - in which case the ratepayers going to get it eventually.

by HW2 | 6th Mar 23, 1:06pm 1678061183

Upfront DC costs ultimately increase the value of (new as well as existing) homes. Is it time to try some other options.

by Pa1nter | 6th Mar 23, 1:16pm 1678061788

Costs for new development will likely only escalate so either way it's inflationary for all housing. Potentially that becomes a chicken and egg scenario, councils can charge more because property is valuable but part of the scarcity is created by council.

by HW2 | 6th Mar 23, 2:20pm 1678065636

"The scarcity is created by councils"

HamiltonCC is scratching their collective heads on how to remove $6m from the budget. If that means doing less infrastructure then new areas won't open up

Only $120 over 50,000 rating units. I am all for fast tracking to create extra supply even if it means paying more. Will be branded for that perspective

by paulywalnuts | 6th Mar 23, 2:52pm 1678067575

$6m is such a paltry amount when it comes to their overall budget I had to laugh and assume it was performative.

by nktokyo | 6th Mar 23, 12:36pm 1678059367

Things always appear calm when you're at the top of the cliff and haven't jumped yet.

The building sector is completely f**ked.

by Pa1nter | 6th Mar 23, 12:44pm 1678059845

New residential housing is borked.

Renovations seem to be holding their own

Commercial has 2-3 years+ of runway in front of them

Unless you're talking about the overall state of the sector, in which case I'd agree, it's really, really nuts. Although I can't see it improving much either, maybe a sharp downturn will have a Darwinian effect.

by Sluggy | 8th Mar 23, 6:35am 1678210550

Commercial is interesting, warehousing is in short supply, mostly because of bloated inventories. I'm picking these inventories will get cut in half over the next 12 months, and the demand on warehousing will fall out completely. Between that and business failures the tide will turn pretty quickly.

Retail and office space have been in major decline the last 3 years.

by Averageman | 6th Mar 23, 1:13pm 1678061603

Agreed. Was taking to the owner of a spe ialist trade business last week. He was grumbling about having to do quotes again vs getting "just get it done" no quote require orders.

As artificial as the stupidity of cheap debt.

by JimboJones | 6th Mar 23, 1:15pm 1678061720

Is f**ked now or will be at some stage? This data implies there will be a good amount of construction this year.

by HouseMouse | 6th Mar 23, 3:03pm 1678068224

These figures are for all sectors. And for starts in the last quarter of last year.

Lets see what starts are like for residential in Q1/Q2 2024. I expect there will be a big drop away.

by Hemi Ti Wire | 8th Mar 23, 8:34am 1678217696

Yip its a cluster. Their is a huge glut of houses, sections, developments... all thanks to the governments poorly organised housing plan and developers going mad because of the "Covid effect"

The dumb government was late to the party initialy but now they are building with no demand..... except demand from dole bludging car sleeping losers who will get free homes paid for by taxpayers ( build and rent)

No wonder nz is jn a fiscal hole

by JimboJones | 6th Mar 23, 1:11pm 1678061517

May Day 2024?

by IT GUY | 6th Mar 23, 1:22pm 1678062134

Commercial has 2-3 years+ of runway in front of them

lots of commercial dev going on in logistics corridors, like ardmore airport and surrounds etc.

I see Graeme Hart has pivoted to this space.

by Squishy | 6th Mar 23, 3:04pm 1678068264

Surely the flooding events in Auckland and Hawkes Bay/Gisborne will push activity back up substantially in coming quarters?

by IT GUY | 6th Mar 23, 3:34pm 1678070050

Maybe for repairs, red stickered may well be demolished, But i think it will take time before they decide if the land can be rebuilt on at pakawai and esk... insurance payouts take time, IMHO demo may be more active then build for 6 months.....

by Squishy | 6th Mar 23, 3:05pm 1678068327

*Duplicate.*

by BeeBop | 6th Mar 23, 3:47pm 1678070837

First signs, you have to be kidding me?! Been evident for some months as forward orders from suppliers had dropped. Flooring down 30% for some, bathroom ware also down a lot. Then the tradies trying to secure work from reliable developers going forwards. Stats walks backwards into the future, business walks into the future with a rear view mirror.

Did it all to themselves aided by the reserve bank. Price fixing, screwing of the buyers, over leveraging, too much ego. How many toys are being sold now?

by HouseMouse | 6th Mar 23, 3:53pm 1678071231

I guess the info we get here is only as good and current as the official data. I have suggested before to be a bit more proactive with research and talking to people at the coalface

by BeeBop | 6th Mar 23, 9:00pm 1678089630

Surely THAT would require 'being in touch with the people'. Imagine talking to those at the coal face.

by OldSkoolEconomics | 7th Mar 23, 6:59am 1678125552

What goes up...

by Let me be Frank | 6th Mar 23, 7:40pm 1678084849

It is always worth remembering that plans change....especially when 'money' gets tight

by Pa1nter | 7th Mar 23, 7:15am 1678126516

Once you're committed, it's often more expensive bailing out.

by Let me be Frank | 7th Mar 23, 6:44pm 1678167875

Sometimes...but it is also worth remembering that the backing you thought you had can disappear like a mirage.

its not always a choice.

by tis i | 6th Mar 23, 7:55pm 1678085726

The building industry is showing the first public signs of a downturn,

There we go, that’s a bit more accurate.

by IT GUY | 7th Mar 23, 10:12am 1678137171

It will be ok , there will be only one cockroach