Residential building value falls in March, but not as much as expected

The unadjusted value of residential building work put in place in the March quarter was NZ$1.44 billion, 25% below the same quarter last year and at its lowest level since the December 2002 quarter, figures from Statistics New Zealand show (charted left). Seasonally adjusted, the value of residential building work in the March quarter fell 0.4% from the December quarter and was down 26% from March last year. However, the unadjusted value of building work put in place for non-residential buildings was up 5.8% from the March quarter in 2008 to NZ$1.24 billion in the March quarter of 2009. Seasonally adjusted, it was up 3.5% from a year ago, and down 1% from the December quarter. The figures show the home building industry remains in the doledrums, but other infrastructure building has held up relatively well as government spent heavily on roading, stadiums and prisons in the March quarter. These figures are an important component of GDP forecasts. Economists still see contractions in March and June quarter GDP and these figures are unlikely to change the Reserve Bank's view on interest rates. Some may argue the weak home building may help limit housing supply and therefore bolster house prices. ASB economist Jane Turner said that the seasonally adjusted figures showed construction activity remained "surprisingly resilient" over the March quarter.  The total value fell 0.7% (s.a.) from December. "Building consents plummeted over the second half of 2008 and continued to steadily fall over the early months of 2009. Allowing for some lag between building consents being issued and construction activity starting, we had expected to see a 10% decline in residential building activity given there was a 17% decline in the number of dwelling consents issued over the preceding quarter," Turner said. "With construction demand drying up so dramatically, we are a bit surprised that the level of activity managed to remain so robust. In our view, the decline (is) inevitable and we are now expecting a larger drop to show up in second quarter of the year," she said. "Today's result has implications for our near term GDP forecasts, as the work put in place survey is a key input into production GDP estimates. With construction only registering (a) minor fall, we now expect Q1 GDP to contract by 0.7% (compared to 0.9% previously). However, as we view the surprise as merely timing, we will lower our estimate for Q2 GDP accordingly. The construction survey has limited implications, as it typically follows developments in consent issuance. Residential consent issuance has recently bottomed out, which implies that construction activity will also trough in the latter part of this year." Acting government statistician Dallas Welch said the trend for the volume of building work put in place had decreased for the last five quarters, falling almost one-fifth over the period.