Residential construction in Auckland is tough but could get a lot tougher

Property / analysis

Auckland's residential building downturn is likely to get a lot worse

7th Oct 24, 10:27am by Greg Ninness

Although the downturn in residential construction is well underway, the latest figures suggest the worst is yet to come in Auckland.

That's because residential construction in Auckland has been propped up by a large pipeline of work caused by a surge in residential building consents between March 2021 and December 2022.

The graph below shows the relationship between the number of dwellings consented in Auckland since January 2020, and the number of Code Compliance Certificates (CCCs) issued for new dwellings in the Auckland region over the same period.

Building consents are issued before construction starts while CCCs are issued when a building is completed. On average there is about a two year gap between the two in Auckland.

What the graph shows is that up until November 2022, the number of homes being consented exceeded the number of homes being completed by a substantial margin. The difference was particularly large between March 2021 and November 2022.

That suggests a substantial backlog of work built up over that period, as the rate of construction failed to keep up with new projects being approved.

But by the end of 2022 the building industry was starting to catch up. And in May 2023 the number of homes being completed overtook the number of homes being consented in Auckland. That has remained the situation since.

That was caused by an increase in construction and a decrease in new homes being consented. This suggests the high level of residential construction activity Auckland has experienced has been sustained by the backlog of work that built up between March 2021 and November 2022.

But that back log will have to come to an end sooner or later, and the graph below suggests it may be sooner rather than later.

So as tough as the residential building market is in Auckland now, in the not too distant future it's likely to become a whole lot tougher.

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50 Comments

by IT GUY | 7th Oct 24, 10:36am 1728250588

Wages are not going to suddenly pop upwards, to make houses more affordable, so this resolves itself via the normal asset repricing mechanism.

by Retired-Poppy | 7th Oct 24, 10:59am 1728251970

Exactly, job losses along with spreading job insecurity will further suppress demand big time. Sadly, as we head nearer Christmas, job losses will start ramping up.

by Retired-Poppy | 7th Oct 24, 10:59am 1728251948

This is going to be a slow burn story. I sincerely hope this downturn will force out those with unrealistic expectations and transaction to those orientated towards houses being for living in. Despite falls to date, cost of existing dwellings remains unrealistic therefore expectations of further falls is realistic.

by Pa1nter | 7th Oct 24, 11:29am 1728253748

Even if someone "just wants a house to live in", creating that's an expensive endeavour, unlikely to get cheaper anytime soon.

So the price of existing houses, actually looks pretty cheap, and realistic. Because the alternative, costs more.

by HouseMouse | 7th Oct 24, 11:07am 1728252461

Consents and completions are strongly linked to interest rates.

We have further to fall but things will start picking up later next year. How much they pick up is dependent on how far interest rates fall.

the government’s underwriting scheme will also offer some support

by ChrisOfNoFame | 7th Oct 24, 12:42pm 1728258120

"the government’s underwriting scheme will also offer some support "

Indeed. The wrong kind of support, though.

Their 'intervention' distorts the market. (To say nothing of cherry picking winners and nodding to donors.) It would be far better for NZ Inc. - and economic balance - if the RBNZ acted decisively instead. Or put another way, at this time only the RBNZ can turn the tide that re-floats all boats.

"Consents and completions are strongly linked to interest rates."

To an extent. And in 'normal' markets. I have no way of knowing for sure, but I expect a lot of these consents were 'spec builders' that assumed prices would keep rising. The reverse is happening and prices have fallen. Thus their 'get rich quick' spreadsheet calcs would look very different now. Many of these 'spec' consents may never get built, or not for a very long time.

"We have further to fall but things will start picking up later next year. "

I could have sworn you said that a year ago? (I'm jesting. I haven't looked.)

by Blackbeard | 7th Oct 24, 11:13am 1728252807

Boo hoo...

construction and trades have had it bloody good for ages . Welcome to the slowdown that the rest of us are going through. Maybe they can flick off the Ford ranger if they are hard up.

by Pa1nter | 7th Oct 24, 11:36am 1728254197

Only in tall poppy paradise would someone consider a Ford Ranger a high roller set of wheels.

by sgtshortcut | 7th Oct 24, 1:55pm 1728262538

Wowee…have a shot at dodgy developers sinking under their own greed maybe but most tradies I’ve had work for me have been pretty genuine fellas, if they work hard & end with a ranger then good on them…my son had braces recently, with your attitude I should’ve slashed the dentist’s tires eh, his “hourly rate” was a lot more than the joker who did our plastering 🤷🏻‍♂️😂

by nigelh | 7th Oct 24, 4:40pm 1728272426

They won't be cocking a snook now at house construction on offer. Which year did you want it built if any response at all to an enquiry, will be probably be met with when can we start.

by Uninterested | 7th Oct 24, 11:53am 1728255237

I think that a good chunk of the houses being consented at the moment represent development on plots of land which were bought ages ago by developers who have found that they could not onsell this land for anything like what they bought it for. So they are having to grit their teeth and go ahead with their development. So I expect that these legacy projects are making things look rosier than what things would otherwise be.

by IT GUY | 7th Oct 24, 12:01pm 1728255674

It's also easier to sell with RC, does not mean they get built anytime soon, the economics are not there.

You would think with all the Spruikers on here lined up to by them it would be gang busters, however it appears there are few off the plan Spruikers buying these builds. Do as I say not as I do?

by Dale Smith | 7th Oct 24, 12:27pm 1728257241

Yes, they will try to dig their way out of a financial hole, hoping for a return of the high capital speculative growth of old.

But these are the very policies the Govt. is trying to end.

At best, they will have to fire-sale their way out of it, before the policies that allow truly affordable housing to be built kick in.

by IT GUY | 7th Oct 24, 11:58am 1728255521

For sure personal builds will continue, but there is a huge amount of debate around realizable value at the end of projects, so I suggest that spec builds will be limited until rates get lower and property prices become a bit more predictable.

by lt84 | 7th Oct 24, 12:15pm 1728256539

Blame goes to the phoney baloney govt they’re learning on the job

by Cote d'Azur | 7th Oct 24, 12:19pm 1728256752

Uh oh supply evaporating...

by ChrisOfNoFame | 7th Oct 24, 2:21pm 1728264064

Probably not. More a return to normal. There's still decent coin to made with the right project.

by Dadpool | 7th Oct 24, 12:20pm 1728256830

Why build when you can buy at a better rate. If less is being built then at some stage demand will out strip supply and prices will go up. And their you have the continuation of the housing cycle. The only thing that really changes is the timing.

by IT GUY | 7th Oct 24, 12:30pm 1728257436

Yes the concern should be about retaining the skills necessary to resume building again. And freeing up land use rules.

by Dadpool | 7th Oct 24, 1:03pm 1728259397

It's a conundrum. House prices would need to go up to make building viable amd therefore retain the skilled workforce. As much as people want to see more affordable housing built I can't see how that is possible. Land, products, labour, and associated compliance costs generally only go up. Freeing up land seems the intuitive answer to lowering land costs however the devil is in the detail and its not cheap making land available to build on

by IT GUY | 7th Oct 24, 1:32pm 1728261152

Totally, the council has so many rules and contributions, they just do not want to make subdivision easy.

We get what we vote for I guess.

by Pa1nter | 7th Oct 24, 2:09pm 1728263361

We don't really vote for much of this stuff. We just vote in the representatives, who interface with our bureaucratic regime. And anytime we can identify or experience a new hazard, we add to the bureaucratic pile.

And the representatives are usually responding to the loudest cries.

by bw | 7th Oct 24, 12:39pm 1728257971

The Supply is there. We don't have a housing shortage per se, but an inequitable distribution of ownership.

If someone with 100 houses, say, has to sell for whatever reason (age, for instance. They've been building their portfolio for decades, and selling now to enjoy their final years is upon them?) that's 100 existing houses that will come to market at prices that will undercut the primary builders. Multiply that by those who have 50; 25, 2 and that's a lot of second-hand, cheaper Supply that could come to market (again, for a variety of valid reasons).

by Dale Smith | 7th Oct 24, 12:59pm 1728259168

Yes, but the real point to take out of this, is that under previous restrictive conditions, you could put an older, poorly insulated, etc. property on the market and it would sell at a higher price that did not take into account the poor house amenity value compared to a new (but still overpriced) house.

As demand falls off, then it is these older properties that will take the biggest paper hit. The sellers could still be happy with the outcome but just not as happy as in the older system that allowed speculative price gouging.

by K.W. | 7th Oct 24, 1:22pm 1728260557

Arguably those older houses have much greater amenity than newer houses. They are on larger sections so they have lawns for the kids/pets to run around on, space for vegetable gardens, fruit trees etc. They have double garages, and workshops. They are properly oriented to the sun. Even if it cost an extra $500 a year in electricity, that's still cheaper over the ownership period than paying $100-$200k more for new build on a postage stamp sized section with a single garage.

by K.W. | 7th Oct 24, 1:17pm 1728260273

We havent even hit the bulk of the baby boomer downsizers yet. The average age of entry to a retirment village is 75-80 years old - the oldest baby boomer is currently 78. There are a lot of large family homes about to hit the market.

https://newsroom.co.nz/2024/02/28/ungrateful-baby-boomers-pose-new-chal…

by Pa1nter | 7th Oct 24, 1:07pm 1728259670

And the cost of new home generation.

by Average Kiwi | 7th Oct 24, 1:43pm 1728261826

I think I need to up the Prozac after reading all of these comments. All I know is that Night follows Day. Then Day follows Night.

by ChrisOfNoFame | 7th Oct 24, 2:27pm 1728264425

Many of the comments come from people who have no idea what they're talking about. I managed good few chuckles sans Prozac.

by wingman | 7th Oct 24, 2:10pm 1728263409

Hardly surprising, the cost of building is out of control.

It took me 6 months and thousands of extra dollars to get my new build over the line with the Council. Which will be the reason many new builds are GJ Gardners.

Less new houses means everyone's going to pay more for existing ones.

by Pa1nter | 7th Oct 24, 2:19pm 1728263955

Which will be the reason many new builds are GJ Gardners.

They generally have the lowest costs. Because they pay the worst.

by nigelh | 7th Oct 24, 5:22pm 1728274966

Would there be many tradies working for them if they pay the worst? Before the downturn they'd unlikely to able to secure tradies if they were that bad. Suspect they make their money on the extras and changes of scope which 90% of the people are unaware of because they don't read the contract.

A few years ago had a GJ salesman come over to discuss a potential build. Came to a broad discussion on the contract and he mentioned it was fifty pages. I said I'd read every one of them and that's the last i heard from him.

by Pa1nter | 7th Oct 24, 6:39pm 1728279540

Would there be many tradies working for them if they pay the worst?

They often cop people not good enough to work other places. Or younger guys starting out, or larger firms who have so many staff they're relying on high turnover themselves.

They're also generally good at paying, and have a large market share, so if someone wants the security of consistent work at lower rates they can be an attractive option.

by Bully Hayes | 8th Oct 24, 7:55am 1728327359

GJ arent a building firm - theyre closer to an HR firm with their main job being organising and co-ordinating sub-contractors

by tomjones_04 | 7th Oct 24, 2:27pm 1728264464

Wingman logic:

Economy good = house prices go up

Economy bad = house prices go up

Any natural event = house prices go up

Everyone leaves the country apart from Wingman = you guessed it... house prices go up

Not a sole qualifies for a bank loan due to crippling unaffordability= house prices go up

It's like listening to one of those fisher price plastic toys with the big button on the top. "House prices up"..."House prices up"

Change the record!

by wingman | 7th Oct 24, 2:48pm 1728265686

Labour costs up, material costs up, subdivision costs up, Council costs up, insulation costs up, architect costs up, land costs up, legal costs up, consenting numbers down.

And we're supposed to believe that new house prices are on the way down. Good luck with that one Tommo.

by tomjones_04 | 7th Oct 24, 2:54pm 1728266075

I'm open minded Wingman. Prices may rise, they may continue to fall. I do feel that we are at a very interesting junction though. Residential property (today), is a crap investment...unless like yourself, you are taking risk by building. (And credit to you).

I am curious to the long term future of investing trends in NZ? Property will likely not be the cash cow it has historically been, and TD's becoming less attractive by the week. It's an interesting time..

by wingman | 7th Oct 24, 5:24pm 1728275059

The Reserve Bank predicts that house prices will increase 4.79% in the year to December 2025.

We've had posters here predicting that property prices will be stagnant or even decline until 2030, but they're in very short supply recently.

by ex socialist | 7th Oct 24, 4:23pm 1728271396

The reserve bank isn't the best at predicting house prices - and that is a national figure. I can see a lot of secondary centres edging up but Auckland being within 2% of current levels this time next year.

by ex socialist | 7th Oct 24, 4:21pm 1728271279

Well to state the obvious - if material costs and labour costs go up but house prices are static or go down - Then land values fall. We are starting to see this but we have to get rid of the idea that land prices always go up. I know that some will complain about infrastructure and consenting costs - but they are still a small proportion of a section price.

by wingman | 7th Oct 24, 6:42pm 1728279768

How do land prices go down when there's miles of red tape and legislation which takes years to get through Parliament? All that's currently occurring is a talkfest.

Why would anyone sell their land cheap? Why do Chinese buy land on the outskirts of Auckland and sit on it? They're not worried about this generation, they're looking at a couple of generations down the track.

https://www.opespartners.co.nz/property-markets/house-price-predictions

by Pa1nter | 7th Oct 24, 6:42pm 1728279746

I know that some will complain about infrastructure and consenting costs - but they are still a small proportion of a section price.

Depends on the section, but often 1/3 of the cost when you buy a section is in the compliance and infrastructure.

I could give you a piece of land for free, and you'd have to spend $150k before the digger arrives to level the site.

Given the financial states of many councils, could you see them wanting to charge less, or more again in the future?

by DIYman | 7th Oct 24, 6:54pm 1728280499

How many people on this site have actually built a house, did the resource consent themselves, submitted the consent application, put the Gib up, fronted all the council inspections, and paid all the specialists like the roofer? The cost of building is not as high as everyone is saying and it's not going up, $2000/sq meter is very doable. SG8 framing costs $3/meter at my local hardware store, yes thats correct, and it's nice and straight. A new hot water cylinder was $500 , LED downlights are $11 each if you buy 40 or more. Nailguns put nails in faster than hammer ever could, nails are $25 for a 1000 at trade depot , stormwater fittings are $3 or $4 at trade depot, stormwater pipe is $7 a meter.

by Pa1nter | 7th Oct 24, 9:41pm 1728290510

I'm involved in construction and have worked on a fair few houses.

The bits and bobs can be cheap in isolation but the labour and compliance to turn them into a house are another story.

$2k is the entry level now. It also excludes things like driveways and landscaping. And 5 years ago it was $1500.

by DIYman | 8th Oct 24, 10:33am 1728336817

Auckland prices, compared to christchurch prices, and dont forget an entry level house now is way wormer than anything built ten years ago

by Dadpool | 7th Oct 24, 11:02pm 1728295370

I just completed a fairly high end stand alone build in Auckland where I manged most of the above. Approx 375sqm. Ended up at around 5k a sqm. A mate does a similar thing and also spends 5k+ per sqm

I'm predicting the next build will also end up at a similar rate. Prices are not going up however their not really going down either. Perhaps on a few items such as steel and cedar. The new healthy home regs have just kicked in so that will cancel out any savings.

The old adage that it was always cheaper to build yesterday still mostly holds up.

by Pa1nter | 8th Oct 24, 12:48am 1728301705

That's not high end, that's 'moderately nice'.

Actual high end is over $10k a square.

by Dadpool | 8th Oct 24, 12:34pm 1728344059

Yea, its all relative, and how smart you build.

by wingman | 8th Oct 24, 8:38am 1728329915

I'm building on the outskirts of Auckland.

Cost per sq. m. is $4,200, but that includes deck and garage.

Excludes excavation, driveway and legal costs.

by AdamJay1990 | 11th Oct 24, 2:11pm 1728609107

I've noticed some of my local building companies struggling. But at the same time, other associate services like roofers (https://www.arcclad.co.nz/roofing-auckland-contractors) and "nice to have" home improvement services like outdoor pergolas and the like (https://www.weathermasterak.co.nz/awnings), humming a long very well. I suspect it is the same old story in the building industry - when times are good, tick up as much as possible and when times are bad, plummet to reality.