Residential building activity flattens

Property

Statistics NZ figures for April suggest house building activity both in Auckland and around the country may be starting to ease, albeit from very high levels

30th May 19, 11:01am by David Hargreaves

Residential building activity is showing signs of flattening, albeit at high levels.

According to Statistics New Zealand there were 2605 dwelling consents issued nationwide for April, which was down on the 2729 for the same month a year ago. In Auckland last month there were 1043 consents, down from 1163 in April 2018.

Recent business confidence surveys have shown a marked downturn in intentions regarding the construction industry. The latest ANZ Business Outlook Survey showed the weakest outlook for residential construction intentions in 10 years.

ASB senior economist Jane Turner said she believes house-building activity is likely close to a peak, "but we expect residential construction activity to remain at high levels over 2019 in order for housing supply to make up the shortfall which has emerged in recent years".

"...Some forward-looking indicators are pointing to a decline in housing construction demand. However, we expect lower interest rates to stimulate housing demand and the Government’s decision to rule out a capital gains tax will likely boost investor confidence."

Westpac senior economist Satish Ranchhod said it looks like the peak in the nationwide construction cycle "is fast approaching".

"We expect this to occur in 2020. In part, that’s due to the continuing winddown of post-quake rebuild work.

"In many other parts of the country, we still expect strong levels of construction activity, but beyond 2020 we don’t expect to see the sort of large increases we saw in previous years (and in some regions there could be modest declines). That’s because after strong increases in recent years, home building activity is now more commensurate with population growth.

"In addition, while population growth is currently elevated, migration is past its peak and we expect it will continue to gradually ease back."

Included in the latest month were consents for 1,659 stand-alone houses, 553 townhouses, flats, and units, 201 retirement village units and 192 apartments.

In the year ended April 2019, the number of new dwellings consented was 34,392, up 7.4% from the April 2018 year.

This brought the tally of consents for Auckland in the 12 months up to 13,754, up 18% on the 12 months to April 2018 and very much at modern historical highs.

Interest.co.nz estimates that around 12,867 new homes need to be added to Auckland's housing stock each year to keep pace with its population growth, and the latest figures show 13,875 new dwelling consents were issued in Auckland in the 12 months to March, up 24% on the previous 12 months.

Stats NZ said in April 2019, the seasonally adjusted number of new dwellings consented around the country fell 7.9, after falling 7.4% in March 2019. For stand-alone houses only, the seasonally adjusted number in April fell 4.2.

In the year ended April 2019, non-residential building consents totalled $7.5 billion, up 11% from the April 2018 year. Stats NZ says this series can be influenced by price changes – non-residential construction prices (as measured by the capital goods price index) rose 4.6% in the March 2019 year.

The interactive chart below shows the monthly dwelling consent trend in each region.

Building consents - residential

Select chart tabs

Source: Statistics NZ

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46 Comments

by tothepoint - d… | 30th May 19, 11:34am 1559172854

Not sure we can have too much confidence in the data coming from Statistics NZ right now......

But if residential construction is dipping, there will be more upward pressure on house prices.

TTP

by Clementé | 30th May 19, 11:25am 1559172313

Or someone who knows how housing markets work has done their sums and thinks that the likeliness of house prices staying as high as they are now is slim, so reduce risk and stick with what you got, in turn land prices will fall as developers aren't tripping over each other to buy, etc etc.

by Clementé | 30th May 19, 11:26am 1559172419

Case in (to the) point - look up number 1 Bullock Track, Auckland

by tothepoint - d… | 30th May 19, 5:47pm 1559195247

Hi Clemente,

It’s quite possible that house prices will increase across NZ over the next 12 months - and that includes Auckland.......

The denouncement by the Govt of a more comprehensive CGT, continuing drops in interest rates - and now the prospect of fewer houses being built - gives a certain signal.

For me, personally, this is NOT good news. I’d love to purchase a villa in Ponsonby - but there’s nothing on the market that I could afford.

And prices might well go higher.......

TTP

by swapacrate | 30th May 19, 8:53pm 1559206383

If you were average TTP maybe you would make $400,000 for your household, as apparently this is common, then Ponsonby wouldn't be a dream.

If people can afford it then prices will go up, but if people cannot afford it and they feel that prices are overvalued in the current climate then maybe they will drop. What happens if cost of borrowing increases, there's an external shock, borrowing becomes harder. Even on 400K things may become tough.

We will wait and see.

by tothepoint - d… | 31st May 19, 8:39am 1559248793

Hi swapacrate,

I imagine there are plenty of Ponsonby households with incomes of a lot more than $400,000per annum.......

In the even more up-market Freemans Bay, the figure is no doubt higher.

TTP

by swapacrate | 31st May 19, 9:20pm 1559294415

TTP I know more then 5 who earn over that, maybe more, that's not my point. You said it was common and average. So you should be able to afford in Ponsonby, as its just an average income. But 400,000 is not an average income, maybe in Ponsonby, but I doubt that as well.

But if house prices become greater then 5 million lets say, then $400,000 income is not going to buy you much. So its all down to affordability, there is a ceiling on what people can afford and what banks will lend.

by Advisor | 30th May 19, 11:33am 1559172828

Several sectors of the economy are struggling to keep their heads above water. Fewer residential construction projects could eventually lead to job cuts across the industry. I don't think the non-residential construction sector is large enough to absorb those out-of-job construction workers.

But you're right, this is the perfect time for people to borrow hundreds of thousands of dollars to buy properties in far-flung outskirts of Auckland.

by tothepoint - d… | 30th May 19, 5:53pm 1559195596

Hi Advisor,

There’s a great deal of new investment in retail - especially across Auckland.

This suggests that retail merchants are confident that consumer spending will remain solid - and buoyed by relatively low interest rates.......

Look at the market for new car sales. It’s booming - and not the only example.

TTP

by Sluggy | 31st May 19, 5:55am 1559238955

Please do tell where your insightful retail predictions come from ?

by tothepoint - d… | 31st May 19, 1:51pm 1559267517

It's not predictions - it's what's actually happening.

There's all manner of retail developments being built in Auckland right now - right through to mega-developments.

If you visit Auckland, you can see them for yourself.

TTP

by swapacrate | 31st May 19, 9:25pm 1559294717

I read with a flattening of house prices, then there will be less spending, this is from a fellow property person like yourself that wants prices to grow.

He said that less growth then less spending, as people borrow against the value of their house. Which in my mind makes them foolish, but people do feel richer with house price growth.

As for development growth, if prices drop then these guys may lose a bit of money on their investments, or if they want to break even they may even have to drop prices.

by Cowpat | 30th May 19, 11:55am 1559174128

1. House prices have trended down in Auckland for three years, yet there is a housing shortage.?
2. Statistics New Zealand building consent data is unreliable, but its population data, both nationally and regionally and its migration data which gives rise to the housing shortage meme is accurate ?
3. Barfoots latest weekly auction results post capital gains/ OCR and school holidays saw only 28 percent of homes sold.
4. Confidence in the Auckland housing market has changed while mortgage rates have never been lower.

by tothepoint - d… | 30th May 19, 6:11pm 1559196682

Hi Cowpat (my bovine friend),

Auckland house prices have not trended down the last three years. Auckland house prices are significantly higher now (May 2019) than they were in May 2016.

Note that Auckland house prices peaked around Oct/Nov 2016. Since then there’s been very little price movement, with reputable commentators describing prices as “flat”......

Auckland rents, however, have risen considerably since May 2016 - as tenants will quickly tell you!

TTP

by Pragmatist | 30th May 19, 12:32pm 1559176360

There is so much upward price pressure.. thats why 60% of the houses that didn't sell at barfoots auckland auctions the other week now have asking prices below or equal to their 2017 RVs (of the ones still on the market and priced).

by BuyLowSellHigh | 30th May 19, 12:46pm 1559177181

Agreed TTP. Reduction in supply would put upward pressure on prices. Other factors may mean that these pressures are counteracted or lessened, but you have to be a level 9000 DGM to deny that a reduction in supply would put upward pressure on prices. Unfortunately 95% of commentators here can’t even bring themselves to acknowledge this simple fact.

by Pragmatist | 30th May 19, 12:51pm 1559177463

1) its not a reduction in supply, its a reduction in the increase of supply.
2) if you close your eyes to all other factors, then yes, a reduction in supply would put prices up.. but see #1, and you can't close your eyes to all the other factors.

So saying that its going to push prices up is blind spruiker optimism (TTPs forte). And prices are already falling in Auckland, as confirmed by last months HPI.

by BuyLowSellHigh | 30th May 19, 1:27pm 1559179623

1. Headline: "Worldwide aluminium shortage causes huge reduction in supply of new cars, putting upward pressure on prices". Pragmatist in letter to Editor: "Its not a reduction in supply, its a reduction in the increase of supply" Editor: *Shakes head and does not respond*

2. Who said a reduction in supply would put prices up? The claim is that a reduction in supply will put upward pressure on house prices. Clearly stated above that "other factors may mean that these pressures are counteracted or lessened...".

by Pragmatist | 30th May 19, 2:04pm 1559181870

Yeah, so for 1 above, owners would hold onto their old cars longer as upgrading would present a poor value for money proposition. And cars are a wee bit less durable than houses.. car has a useful life of ~15-20years, a house 60+ .. so not really all that comparable.

2... yeah, okay, like thats not you and TTPs entire schtick.. sheesh.

by BuyLowSellHigh | 30th May 19, 2:23pm 1559182994

1. Minister of Transport: "Dealing with congestion by building more roads is like dealing with obesity by loosening your belt" Pragmatist: "Roads are far more expensive than belts, and roads are congestion free at night, but fat people are fat 24/7, so not really all that comparable." Minister of Transport: https://media1.tenor.com/images/46d73c3cc50fa32e0e1d8c2a38007477/tenor…

2. Read my words, not what you guess I'm thinking.

by BuyLowSellHigh | 30th May 19, 3:17pm 1559186248

"Global diamond supply expected to decrease this year" http://www.mining.com/web/global-diamond-supply-expected-decrease-year/

Complain to these guys and tell them that its not a "decrease in supply", its a "reduction in the increase of supply".

Your durability argument doesn't make sense. Nevertheless, I'm sure you don't think that houses are more durable than diamonds.

by Pragmatist | 30th May 19, 3:23pm 1559186631

Keep going, this is amusing.

by BuyLowSellHigh | 30th May 19, 3:29pm 1559186993

Unless you’re going to attempt a counter-point, I’m pretty content to leave it there.

by lonewolfnz | 30th May 19, 3:34pm 1559187244

Well, every four years the bitcoin supply exactly halves, and just look at what happens to the prices each time! Next halfing is 12 months away now by the way.

by swapacrate | 30th May 19, 9:03pm 1559207015

BHSL so if we had 1 million houses being sold at $5 million dollars, and we had 1.2 million buyers who earned $50,000 a year, would house prices go up or down.

It doesn't matter how many buyers or houses we have if we cannot afford them. The overseas tap has been turned off.

by Glitzy | 30th May 19, 1:02pm 1559178143

TTP, quite the opposite, at least in Auckland. We will have increased supply in 2019 thru 2021 just as the market is already cooling. Prices likely to continue to decline as this new stock competes with existing home sales for the buyers dollars.

by Big_Data | 31st May 19, 7:30am 1559244611

So you know that thing where house price growth declines doesn't mean the same as house price declines? Similar to increase in consents slowing not being the same as numbers of dwellings declining, no?

Either way houses aren't selling well already and we have a backlog of unsold new homes sitting vacant already. Check this out - maybe it's why:

https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12…

Happened in Az. Massive price growth fuelled construction levels insanely. When the market started to tank there were already far too many homes in construction. Didn't end well.

by NorthernLights | 2nd Jun 19, 2:12am 1559398329

Look at the annual property tax we pay here in NY . Sopranos house just went on market
https://www.nytimes.com/2019/05/31/realestate/tony-sopranos-house-for-s…
That’s US$34,000 a year on a property worth just a couple of million ( house values in area range between 1.5 to 2 plus million )
Compare that to the pittance the wealthy in Auckland are paying
In Auckland it’s the low & middle that shoulders the burden for the city & another reason why Auckland super city is in extreme debt & is behind on infrastructure like just basic rapid transit initiatives
https://www.northcaldwell.org/inc/searchresults?s=Property%20tax%20rate…

by Advisor | 30th May 19, 11:23am 1559172228

Interest.co.nz estimates that around 12,867 new homes need to be added to Auckland's housing stock each year to keep pace with its population growth, and the latest figures show 13,875 new dwelling consents were issued in Auckland in the 12 months to March, up 24% on the previous 12 months.

Are we comparing apples with apples here, David? Forget the small number of houses that get consented but are never built; as we've discussed before on this website, that makes up 2-3% of consents.
Is it fair to assume that a decent number of dwellings are consented as part of a redevelopment project, therefore all the dwelling consents won't necessarily add to the existing housing stock as some should be counted as replacements? Do we have any data to analyze those numbers or percentages.

by K.W. | 30th May 19, 11:43am 1559173426

Probably the same thing happening in Auckland as in Sydney - developers who have built into the residential "housing shortage" have found themselves sitting on bucketloads of newly built homes and sections that they can't sell, because there is also a shortage of people who can afford to buy them. Extrapolating a supply shortage based on the number of people (high number of immigrants) ignores the fact that demand is reducing, as locals and immigrants alike dont have the cash for the deposit, can't meet the servicing requirements for a mortgage, and thus can't afford to buy a house no matter how many are built and made available for sale. The only cure for this problem is lower house prices.

by Lapun | 30th May 19, 2:07pm 1559182060

The only cure is lower house prices or replace low paid poor immigrants with wealthy, well paid immigrants.

Replace INZ bureaucrats attempting to identify skills in the way Russian central planners used to do with a simple dutch auction - if that was 12,000 wealthy immigrants arriving house prices would remain high. Hard to attract 12,000 wealthy families to Auckland if better opportunities for work and housing exist in Australia.

by unaha-closp | 30th May 19, 12:27pm 1559176042

Looks like what is happening in Sydney/Melbourne, but any resulting house price falls will be greater in Auckland as land value forms a higher proportion of house value here. Land pricing in Auckland is high cost and any drop in demand will be impactful.

by BuyLowSellHigh | 30th May 19, 1:48pm 1559180894

"Interest.co.nz estimates that around 12,867 new homes need to be added to Auckland's housing stock each year to keep pace with its population growth, and the latest figures show 13,875 new dwelling consents were issued in Auckland in the 12 months to March, up 24% on the previous 12 months."

Corelogic say that 70% of building consents result in net additional dwellings. In part due to the consented units not being built, and in part due to existing dwellings being demolished to make way for newly consented ones.

by Voiceofreason | 30th May 19, 3:12pm 1559185942

Correct me if I'm wrong, but this article seems to be indicating there isn't much of a housing shortage now, if at all, in most of the country including Auckland. Building is keeping pace with demand, if not outpacing demand. Certainly, there are a lot of places for sale, and a lot not selling quickly - at least at current asking prices.

by BuyLowSellHigh | 30th May 19, 6:23pm 1559197392

MBIE says there is a pre-existing shortage of over 40,000 houses in Auckland alone. So even if you start to eat away at that by outpacing population growth, it would still take years to get rid of the “shortage”. And the number of houses consented doesn’t equal the number of houses built. Core Logic says only 70% of building consents result in net additional dwellings. If that is true, we still aren’t building enough to keep up with population growth (if stats NZ’s immigration numbers can be believed).

by Voiceofreason | 30th May 19, 6:51pm 1559199114

BLSH, yeah as you know I’m not convinced on the reliability of the housing shortage numbers. It’s not like it hasn’t happened before in various places with housing bubbles, that a shortage has turned out to be non-existent or way overblown. This article posted here the other day seems apt. I guess we’ll find out soon enough.
https://www.irishtimes.com/news/dublin-housing-shortage-to-continue-1.8…

by BuyLowSellHigh | 30th May 19, 7:50pm 1559202622

DGMs have been telling me “we’ll see soon enough” for the last 4 years

by Voiceofreason | 30th May 19, 11:51pm 1559217106

Well it’s true that I’ve been less than optimistic about the Australian and NZ property markets since about mid-late 2015 (sold a place in Auckland early 2016), unlike the 10 years before that. The 20%+ capital gain years in Auckland confirmed the near end of the bubble for me.

by unaha-closp | 30th May 19, 3:39pm 1559187543

If you own leasehold property this is great news, the housing supply reduction means your house price is likely to increase.

by Clementé | 30th May 19, 4:06pm 1559189174

load yourself up with 5 nice 1 beddy flats leasehold flats for a cool mil and see how quickly you can lose 500,000

by unaha-closp | 31st May 19, 3:31pm 1559273503

I reckon they'll beat the Auckland market for the next few years, but also reckon the Auckland market is pretty bad. A least loser investment in a troubled market.

by The_4th_estate | 30th May 19, 9:23pm 1559208218

No way there can be a decline industry wide with all the building regeneration that the healthy homes legislation is triggering. In Sweden they have millions of old houses built post war that are deemed obsolete and are due for replacement. Our crude attempt at replicating a rental property sector in the 90s was established with already antiquated housing stock (old cold state houses or desperately under maintained villas from private sector stock) which are long past being acceptable in the face of rents demanded. The whole lot have to be renewed, theres decades of work in there sitting for the taking...and the construction sector is whinging asking for a pipeline...what next? Do you want me to make the cups of tea at smoko for you too?

by Chairman Moa | 31st May 19, 11:08am 1559257727

Nobody mentioned Christchurch or Palmerston north, all about Auckland. What is wrong with you guys?

by Pragmatist | 31st May 19, 12:05pm 1559261148

I think you are severely overestimating the amount of work being generated by the healthy homes legislation.. Installing underfloor insulation and a few extractor fans (for the minority of places that don't have them) doesn't require much in the way of builder/plumber/drainlayer time. Yeah, the heat pump guys will get busy, and sparkies a bit busier to to supply power connections for said heat pumps and extractor fans.

by mikekirk29 | 5th Jun 19, 10:59am 1559689168

PLEASE could you stop referring to a 12,700 shortage in Auckland based on population???
Population does not equal: can afford!
Also, shortage of what type of housing?
There is a huge stock overload in Rodney of 4 bed property which is NOT selling.
Why not? If there is, as you endlessly repeat, a shortage?
Nothing to do with the price then?
Or the 42% drop in sales over $1.2m in Albany Ward, by way of example, in last year?(last 4m compared to a year earlier)
Formulas do need to be tested, rather than simply used regardless.
Good quality 3 bed houses for rent - now , there is a shortage of that.
Owner occupation, when Stats NZ gets it's figures out eventually, will be under 50% in Auckland.
Good news for the rich landlords but not a future of asset based wealth for the other half of the population.

by mikekirk29 | 5th Jun 19, 11:06am 1559689562

A few homilies on price.
Price is not determined by supply in housing in Auckland.
It is determined by what bank will lend. banks lend more because it takes longer to repay and so they make MORE interest than on a shorter loan at a higher rate.
This, in turn, mostly relates to income multiples and banks view of risk.
There is plenty of supply in Rodney of 4 bed houses over $1m. Unfortunately, sales are not supporting view re supply "shortage" because there isn't one.