Building consents at highest level since September 2008 (Update 1)

Residential building consents, excluding apartments, rose to their highest monthly level in August since September 2008, although issuance still remained low compared to higher growth periods from 2002 to 2006, Statistics New Zealand said. There were 1,165 consents for new housing units in August, up slightly from July and 3% below August 2008. (Update 1 includes economist comment.) There were 30 apartment consents issued over the month, the lowest for any month since December 1995, and compared to 124 in August 2008. However, Stats NZ noted apartment numbers can vary considerably from month to month. A shortage in quality housing stock and low levels of building consents over the last year have led some economists to project that house prices may rise by up to 24% over the next three years as supply of properties to the market remains low. Currently low mortgage rates have also created incentives for home buyers and investors to jump back into the market. "The trend for the number of new housing units authorised, excluding apartments, has been increasing in recent months, although it remains at a low level," Stats NZ said. "When apartments are included, the trend has been increasing since January 2009, although it has eased in recent months," it said. Seasonally adjusted figures also showed residential consents, excluding apartments, at their highest level since September 2008. Commenting on the figures, ASB economist Jane Turner said: "the gap between house sales (a proxy for housing demand) and consent issuance remains, with building slow to catch up as economic uncertainty continues to weigh on construction demand."

Building activity remains at very weak levels although is likely to be close to a turning point, given the tentative pick up in consent issuance. Low interest rates, an increase in net migration and the recent pick up in house prices are factors which should underpin residential construction activity going forward. However, the recovery is likely to be comparatively soft with demand remaining under pressure from rising unemployment, slowing income growth and the recent pick up in longer-term interest rates.