House building industry showing signs of revival as building consents rise in October (Update 1)

In another sign that the house building industry is on the road to recovery, residential building consents, excluding apartment consents, rose for the sixth month in a row in October to the highest level since mid-2008, figures released by Statistics New Zealand show. (Update 1 includes economist comment.) There were 1,321 consents issued for non-apartment dwellings in October, up from 1,275 in September and 1,123 in October 2008. There was 103 apartment consents during the month, down from 155 in September, but up from 50 a year ago. Again the theme of apartment figures being proped up by retirement village construction was apparent, with 75 of the 103 consents for assisted living apartments associated with retirement villages, Stats NZ said. There were 1,424 residential building consents issued overall during the month, down slightly from 1,430 in September, but up from 1,173 a year ago. Seasonal adjustment shows the number of residential consents, excluding apartments, rose 11% over the month, on the back of a 3.5% rise in September, Stats NZ said. ASB economist Chris Tennent-Brown said the 11% rise was higher than expected. "The recovery in residential construction continues to lag behind the recovery in housing demand, but the recent increase in house prices should also help stimulate new construction. We expect consent issuance to continue recovering into 2010," Tennent-Brown said. Here is the release by Stats NZ:

In October 2009, the seasonally adjusted number of new housing units authorised (excluding apartments) rose 11 percent, Statistics New Zealand said today. This follows a 3.5 percent rise in September 2009 and brings the number of consents to its highest since June 2008. When apartments are included, the number of new housing units rose 12 percent. The trend for the number of new housing units authorised (excluding apartments) has increased by one-third since March 2009, following a series of falls that began in July 2007. Including apartments, the trend has increased by over 20 percent since the low in January 2009. Building consents were issued for 1,321 new housing units (excluding apartments) in October 2009. Consents were issued for 103 new apartment units. The value of residential building consents ($481 million) was 59 percent of all building consents in October 2009, compared with a monthly average of 52 percent for the previous 12 months. The value of non-residential building consents was $329 million. The largest contribution to the non-residential value came from the social, cultural, and religious buildings category (26 percent), which was boosted by a number of sports facilities.

Residential construction intentions are steadily lifting from low levels. The decline in construction activity has created a significant amount of slack in the economy and has been responsible for much of the unwinding in core inflation pressures over the past year. With a construction sector that is likely to remain below capacity for some time, the RBNZ can have some confidence of limited inflation pressure stemming from the sector, although the rise in house prices may be more of a concern. The RBNZ reiterated its intention to hold the cash rate at low levels until the second half of 2010, as the sluggish NZ economy requires ongoing policy support. However, with the domestic economic outlook improving we believe the tightness in the housing market will test the RBNZ's patience. We continue to expect the first hike will be in April 2010.