Retirement units in the spotlight
The number of new dwelling consents is still growing in New Zealand despite higher building costs and supply chain problems.
They rose 5.0% in July, with 4,250 new dwelling consents issued over the month. For the 12 months to July 31, there were about 50,600 consents.
Westpac NZ senior economist Satish Ranchhod (pictured above) said consent issuance was slightly stronger than the bank anticipated in July.
“The source of that upside surprise was the large number of retirement units that were issued over the past month (320 new retirement units were consented which was well above the typical level of around 190 per month),” Ranchhod said. “These consents tend to be issued in lumps and don’t really tell us about the broader trend in home building.”
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Ranchhod said looking at consents for buildings other than retirement units provided a clearer picture of what was happening to the building pipeline.
“Consents excluding retirement units have effectively been tracking sideways for a year now at very high levels,” he said. “There are some signs that numbers are starting to edge back, but only very slightly.”
Ranchhod said Westpac NZ was seeing a continued shift from stand-alone houses to medium-density dwellings such as apartments and townhouses.
“That shift has been particularly stark in Auckland where housing density is particularly tight. In fact, stand-alone houses now only account for around 20% of new consents in our largest city, down from around 50% last decade,” he said. “The big question is how long consents and construction activity will remain elevated.”
In terms of consents, Westpac NZ does not expect dwelling consents to reduce over the coming year in response to changing financial conditions, Ranchhod said.
“Building costs have risen sharply over the past year, interest rates are on the rise and house prices are continuing to fall,” he said. “Against this backdrop, developers are increasingly hesitant about bringing new projects to market and buyers are reluctant to make purchases.
“Those factors are being reinforced by the downturn in population growth in the wake of the pandemic.”
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Ranchhod said the slowdown in construction was set to be more moderate.
“There is a large pipeline of building work planned and consent issuance has risen much more strongly than actual building activity with earlier shortages of materials and ongoing shortages of labour continuing to constrain the pace of building,” he said.
“Those conditions mean that while the scope for further significant increases in building activity are looking limited, the level of construction activity is likely to remain firm into the new year. Over time building levels are set to ease back as existing orders are filled and fewer new projects come to market. That will be an easing from very elevated levels.
“Furthermore, with many planned projects, we expect any softening will be gradual rather than a sharp drop in activity.”
