Latest data suggests an approaching downturn in residential construction could be quite severe

Property / analysis

There's a gathering storm in the residential construction industry

10th May 23, 9:19am by Greg Ninness

Image: www.peakpx.com

Interest.co.nz's latest analysis of residential building consents suggests a gathering storm in the residential construction sector.

Statistics NZ's building consent data shows that just 9719 new dwellings were consented in the first quarter of this year, which was down 21.2% compared to the first quarter of last year. It was the first time that the number of new dwellings consented in any quarter of the year has been below 10,000 since the second quarter (Q2) of 2020.

That suggests a major downturn in residential building activity is on the way as new projects are completed.

At the same time high inflationary pressures within the industry continue to impact projected building costs.

The average size of new dwellings consented over the last year has barely changed, from 146 square metres (sqm) in Q1 2022 to 143sqm in Q1 this year. The average estimated build cost per sqm has increased by 14.7% over the same period, from $2695 per sqm in Q1 2022 to $3091 per sqm in Q1 2023, which was the first time ever that it has been above $3000 per sqm.

That pushed the estimated average construction cost per dwelling, excluding land, up 11.7% from $394,554 in Q1 2022 to $440,706 in Q1 2023.

However, even though average building costs continue to increase, the decline in the volume of building work being consented means forward projections of the value of residential building work are also showing a significant decline.

In the fourth quarter of last year, the estimated build costs of all new dwellings consented was down just 4.3% compared to a year earlier, but in the first quarter of this year, total estimated build costs were down 12% compared to a year earlier, even though building cost inflation was running at 14.7% pa.

The biggest downturn in consent numbers has been for standalone houses.

In the first quarter of this year consents were issued for 3956 new standalone houses.

That was the first time in exactly 10 years that quarterly consent issuance (in any quarter of the year) for standalone houses has been below 4000. It was down by 30.5% compared to the first quarter of last year.

Consents for new apartments and townhouses/home units were also down, by 15.9% and 21.1% respectively compared to a year earlier, while retirement village units were the only dwelling type to still be showing consistent growth, up 60% in Q1 2023 compared to the same period of last year.

A regional breakdown of new dwelling consent trends in the main population centres of Auckland, Waikato, Bay of Plenty, Wellington, Canterbury, Otago and nationally, which shows the quarterly movements in new dwelling consent numbers by dwelling type, as well their average build cost per square metre going back to 2010, is available on our Residential Building Consent Analysis page.

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144 Comments

by Zwifter | 10th May 23, 9:47am 1683668833

This coupled with increasing build costs, increasing immigration will put a floor under falling prices. It could be very hard to catch that falling knife, its likely to turn and head skyward again before you can blink.

by Shaft | 10th May 23, 9:54am 1683669250

Only if the immigrants are coming here to buy houses and not transitioning to Aussie or here to shack up with the relies

by Roger the lodger | 10th May 23, 7:09pm 1683702578

(I'm not answering your comment - just want to get mine near the top)

The consent numbers are probably better than they should be as a lot of people would have been getting their consents in before May 1st when the new H1 insulation rules took effect. If the Govt had asked MBIE to them the smallest improvement for the largest amount of (other peoples) money - they wont have been disappointed. Window joinery will cost at least twice as much - and the wall and roof insulation triggers deeper rafters and wall framing - so a double whammy on costs.

Its to lower our power consumption so we produce less CO2 - but power in NZ is carbon neutral under the ETS - so it can't possibly make any difference. Will make new homes even less affordable for zero net benefits. Makes some politicians feeling better about themselves I guess.

by danicriss | 10th May 23, 10:43pm 1683715434

Have you ever lived in a well insulated house? Less mould and warm homes aren't "zero benefits". Not everything is money and statistics, quality of life matters. I guess not for businessmen, though

by mja | 11th May 23, 7:57am 1683748653

Roger, will be referring to the net improvement relative to cost. You are comparing these new builds, to new builds consented before May 1 2023, eg houses built in 2022. You are not comparing to a 1970s house on piles, with nil wall insulation.

You likely will add 50K plus to the cost of a new home. So buyers have a 50K larger mortgage, less money for other items that add to quality of life. For nil real world net benefit, if you are planning on opening doors and windows at some point while residing in your upgraded new build.

by Colin Cameron | 14th May 23, 1:23pm 1684027398

Have built 17 of my own homes over the yrs myself. Got quiet a few rentals no matter how well insulated they are the tenants still don't open the bloody windows. Just yesterday had replaced old wooden joinery with dble glazed and went middle of the day warm out side heat pump on and the new windows were weeping and pooling water in the track. Even after explaining again too tenants that I had specifically put dble catchs on the windows so they can just crawl them. And this is most of the tenants in my houses am constantly telling them.

by AncientCompass | 13th May 23, 9:08pm 1683968911

1. Electricity is expensive, and heat losses are wasted electricity.

Housing quality improvements are low cost compared to building new electricity generation and transmission infrastructure, and much lower cost compared to other societally accepted global warming mitigation measures, such as anything to do with electric cars.

2. We have a public health system, which spends an exorbitant amount of money and resources treating avoidable respiratory disease directly attributable to poor living conditions. The cost of poor health is much more than the cost of eliminating the cause.

by Colin Cameron | 14th May 23, 1:18pm 1684027109

Exactly what I done got my last set of plans by the skin of my teeth. There are ways around the extra insulation and triple glazing smaller windows NZ by and large has the most and biggest window openings in the western world. Because we are not as cold as Europe and nor as hot as Aus. Also don't go above 2.4 ceiling height helps as well. But by and large you are right my ceiling insulation for this new build is 7.2 were as before it was 3.6

by CN - new | 10th May 23, 10:04am 1683669863

Heard some reports that developers are having challenges selling their new builds.

Does anyone know why new immigrants and non residents are not buying these properties?

Non residents can buy new build apartments if the developer has a foreign buyer exemption as I understand.

New immigrants, citizens of Singapore and Australia can buy both new build and existing properties as I understand.

by Advisor | 10th May 23, 10:21am 1683670877

Only new migrants on residency visas who have lived in NZ for 12 months can buy property here. That being said, there were 100k+ residencies issued to many here on temporary visas over the last 2 years.

Many of these wouldn't have landed permanency on their own accord, as alluded by Ardern several times in her speeches. Which means a significant number of these migrants aren't better off than the median earner in NZ and won't have the deposit saved up or the ability service a mortgage at current interest rates.

The thousands of green-listed workers moving to NZ straight on residency visas will have to be here for 12 months before they are eligible to buy a property in NZ. Surely, this lot would be smart enough to not catch a falling knife.

by CN - new | 10th May 23, 10:31am 1683671479

Does anyone know how many months of payslips are required for a bank mortgage application?

by IT GUY | 10th May 23, 11:00am 1683673255

last three months but they look at your employment history etc. if self employed last years accounts at minimum.

by CN - new | 10th May 23, 11:53am 1683676410

So for new immigrants that become residents and that have a sufficient deposit and need a mortgage, the earliest that these people could become buyers is 12 months. (12 months residency which includes the last 3 months payslips). Longer if they are self employed.

by Advisor | 10th May 23, 12:40pm 1683679221

I presume migrants with enough saved up and high incomes are smarter with their money (and otherwise) than the average Kiwi. There shouldn't be too many rushing into buy overpriced boxes, especially when prices are falling in the thousands by the week.

by speckles | 10th May 23, 11:56am 1683676602

Currently one bank via mortgage broker only requires last two pay slips...

by Juzz | 10th May 23, 1:32pm 1683682362

3 payslips normally and 90 days account history

by Shaft | 10th May 23, 10:26am 1683671172

Price and wrong place.

Most immigrants are renters and some are utilising social housing ( refugees)

by Property_Wizard | 10th May 23, 10:48am 1683672496

Half of these new build terrace houses are so ugly brand new, just imagine what they will look like in 10 years. No wonder they are having difficulty selling them. The market certainly isn't doing these developers any favours too.

by Shaft | 10th May 23, 10:58am 1683673091

High maintenance too!

Scaff to re paint $10k per resident!

by lowercase capitalist | 10th May 23, 11:22am 1683674561

Theres a cookie cutter subdivision that went in about 5 years ago near where I live. I used to think it was a bit of an eyesore, 500 boxes of ticky tacky. I drove through there earlier this year and its actually looking pretty good as the new owners each put their own spin on the landscaping, trees get established, variations on the designs start to come through as people reno or upgrade things.

Maybe these new terraces you're talking about will be future slums but they might also turn out pretty nice in time and at a minimum they are probably warm and dry.

by HouseMouse | 10th May 23, 11:25am 1683674729

Like all types of housing, some will age well and some won’t.

by Chaosinflesh | 10th May 23, 12:14pm 1683677677

And many aren't suitable for the average family either. Imagine, buying your own home so you can enjoy say, a pet, and then being in the middle of a bunch of neighbours who might not appreciate your pet. Or having kids, and no room for them to run around and be kids.

Shoeboxes are useful for a lot of people - but not FHB. And I fear you'll find only retirees downsizing into them - if they can sell their current abode.

by K.W. | 10th May 23, 1:37pm 1683682655

Retirees don't want them, they are multi-storey which makes them completely unsuitable for the elderly.

by nigelh | 10th May 23, 2:46pm 1683686787

Exactly right and probably staircases unsuitable for a lift.

by K.W. | 10th May 23, 1:36pm 1683682568

Drove past a new townhouse development the other day. They were sold with no body corporate and thats now becoming a problem. No one is mowing the lawn on the kerb, its overgrown and scruffy. No one is weeding up the side of the driveway so that's a mess. Place looks unkempt.

by nigelh | 10th May 23, 2:48pm 1683686899

Someone with better knowledge can comment but as I understand body corporate legislation leaves a lot to be desired.

by nigelh | 10th May 23, 2:43pm 1683686624

Aside from the ugliness, still asking too much.

by K.W. | 10th May 23, 1:38pm 1683682735

The non-resident exemption is only for apartment buildings, they must be sold off the plan and not after completion, and not townhouse developments (must be a multi-storey building with more than 20 apartments) and the buyer cannot live in it (ie. its only for investment purposes). https://www.rvg.nz/exemption-to-allow-sale-of-apartments-to-overseas-bu…

by HouseMouse | 10th May 23, 10:21am 1683670901

Yes, but not until perhaps mid to late 2024

by Zwifter | 10th May 23, 10:34am 1683671655

That's still pretty short timeframe and 6 to 12 months will be about perfect for everything to collide with an election in the middle of it. Absolutely nothing is on a stable trajectory and it's NOT "Business as Usual" so anything is possible. National will be handed a poison chalice, they really will have to get radical to pull us out of this vertical dive.

by chebbo | 10th May 23, 11:16am 1683674192

This is a misunderstanding of supply and demand. The only thing that will put a floor under prices is increased availability of credit.

by IT GUY | 10th May 23, 11:40am 1683675621

Availibility of credit at an affordable price, chasing a quality build product.

At the moment we have very expensive credit, rationioned to only a few, thinking that the price/quality of the house is unbalanced.

The fix is called A RECESSION

by Rumpole | 10th May 23, 12:05pm 1683677135

Hope you are right I fear its a depression, happy to be wrong when Beer & Popcorn is on me.

by Juzz | 10th May 23, 1:58pm 1683683897

I wouldn't say credit is expensive...yet

by Independent_Observer | 10th May 23, 11:57am 1683676641

Absolutely.

Had this discussion with some property investors a few years ago.

They couldn't get their head around the idea that prices were going up because we had excess debt/credit chasing the current quantity of houses.

And at some point, I didn't know when, that reversed, then suddenly the supply/demand balance would be the opposite. There will still be people trying to buy and sell houses (supply), but there just wouldn't be any credit worthy borrowers from the banks perspective (demand) and prices would have to drop.

by chebbo | 10th May 23, 12:03pm 1683677026

Yep. Similarly, despite what people tend to think, supply isn't a measure of the number of houses there are. It's a measure of the number of houses there are for sale. Supply can increase without a single new house needing to be built.

by Rumpole | 10th May 23, 12:10pm 1683677459

Yes and a consent does not mean it will be activated and a house actually built.

by CN - new | 10th May 23, 12:16pm 1683677771

MBIE made the distinction between:

1) underlying supply

2) effective supply

Market prices are impacted by effective supply.

It's only effective supply if the houses are listed on the market for sale. Completed newly built houses but not listed on for sale on the market do not count as effective supply.

by J.C. | 10th May 23, 1:17pm 1683681441

This is a misunderstanding of supply and demand. The only thing that will put a floor under prices is increased availability of credit.

Like a voice from the wilderness lost among the cacophony.

But entirely correct IMO.

by redcows1 | 10th May 23, 1:53pm 1683683582

I'm not sure why it's so. There is perhaps a half dozen or so posters who have maintained this argument consistently over many years and no one ever disagrees with any sort of rebuttal, they just ignore it and carry on.

One day WE WILL BE HEARD.

by Rumpole | 10th May 23, 12:01pm 1683676866

When supply exceeds demand as it will, the cost either reduces voluntarily or the Bank sells at auction to recover its loan or part of and that price sets the price for future transactions.

by Shaft | 10th May 23, 9:47am 1683668844

Megan woods' s "wrong houses in wrong places" plan going well!

How long before the big group franchises ( signature generation, GJ Gardner. A1..) that rely on certain ánnual volumes, flick staff sell their flash utes and maybe even fold.

One major whangarie franchise has low sales and 7 " ford ranger laden" sales staff doing fork aĺl... tik tok tik tok??

by Nzdan | 10th May 23, 11:25am 1683674731

This time last year had a job lined up with GJ Gardner as an estimator. Pulled out last minute. Had a gut feeling around the direction of Residential Construction (I'm in Civil Construction/3 Waters). Regional estimators would be first to go in a head count reduction, particularly those last on the bus, easier to centralize these roles.

by Rumpole | 10th May 23, 12:13pm 1683677613

Megan Woods, wrong person wrong place.

by Speedmax | 11th May 23, 2:37am 1683729450

The market for second hand Rangers will also become interesting….way more supply than demand, with limited credit availability coming soon

by nktokyo | 10th May 23, 9:54am 1683669257

There was a gathering storm a year ago.

by Shaft | 10th May 23, 10:01am 1683669714

More like 5 years ago. When labour got in!

by rastus1 | 10th May 23, 12:03pm 1683676989

Both Nat & Lab relied on and promoted the housing ponzi. Mr Key arguably the worst offender.

by dumbthoughts | 10th May 23, 10:09am 1683670174

Basically every business I'm working with at the moment (or talk to in any context) that has heavy exposure to residential construction is doing it tough, and seeing inquiries dry up and leads go quiet.

This includes businesses not just supplying materials/products for construction, but also some 'outer orbit' companies (e.g. one that supplies furniture packages for new builds, and also sells into big box retailers - the walk-in-and-finance-it buyer has disappeared into the ether).

It won't be long before it flows to my business in terms of losing clients, but at least I have low costs - no flashy utes here - and have some other irons in the fire. Maybe a bit more time to go walking the dog and pick up some other hobbies won't be bad either.

by speckles | 10th May 23, 12:01pm 1683676915

Are you up North? Engineers on starting residential projects still real busy in SI.

by dumbthoughts | 10th May 23, 12:32pm 1683678768

I'm SI-based but my clients I'm referring to here are all NI-based businesses actually.

by Neil21 | 10th May 23, 10:11am 1683670317

The housing conundrum

Builders cannot reduce costs. Insulation, carbon, consent, inflation, labour.

Rising interest rates mean the amount people can pay is lower.

A 2 yr old house is 20% less than a new one, so builders have stopped. Consents down 22%.

Kianga Ora is the only game in town.

Immigration is increasing demand

But not at present prices.

It's an impossible conundrum.

The only place to cut costs is government -

Consent costs could be capped by govt. Geotechs supplied by council.

New houses GST zero rated like in the UK.

by Nellbell | 10th May 23, 10:27am 1683671259

Surely there is room to move on the labour cost. We were astounded at who was being charged at $100 an hour on our recent project… very junior guys with very patchy workmanship.

by OldSkoolEconomics | 10th May 23, 11:49am 1683676162

There is always room. If nobody is willing or able to pay yesterdays prices the builder (and material supplier) can either have nothing.. or work out how to charge what someone is willing to pay (clue.. reduce their own spend and costs). We boomed and caused a bubble.. its burst and is deflating now.. time to sell the utes and jetskis, get a smaller house and buy food at P&S lol.

As usual some workers will be asked to leave or take a pay cut .... at suppliers and retailers etc. When there is nonalternate jobs to go to.. either leave for Aus or take the cùt.

It always follows the same trend. Government will have lower income so (like auckland council) will trim costs.. expect even crappier infrastructure.

We will feel like we went back in time lol.

by Rumpole | 10th May 23, 12:18pm 1683677935

Those who still believe that supply/ demand equation doesn't work are in for a big shock and that includes bureacrats and Govts especially the left type when they join the dole queue and discover their skill set has no market.

by James Thrace | 10th May 23, 11:48am 1683676137

Labour costs should be charged as is. They are easy to figure out.

Materials, etc, all usually come with 15% markup.

Add on GST, then add a further 15% on that, and that should be what the building company should be charging.

The $100 per hour for a 22 year old apprentice being paid $22 per hour in the hand is an absolute rort. I have told (usually small) building companies off for being shysters in that way, and have reduced the amount I paid them accordingly. Have told them if they want to provide an honest invoice that actually breaks down the costs and shows their 15% fat in a true and accurate way, then happy to pay.

Never hear back, so in goes the payment, often for a good 25% less. No bounceback either or claims of not having paid the full bill.

The inability for them to justify their extortionate costs speaks volumes.

by Chaosinflesh | 10th May 23, 12:19pm 1683677940

This is an interesting one, because there are proved cases in the NZ courts where lawyers were charging out at their own rate, but the work was done by a subordinate at a much lower rate.

Perhaps these cases should be applied to builders charging out apprentice/junior hours at their own rate too?

by nigelh | 10th May 23, 3:00pm 1683687617

That's useful info. I may have to litigate a boundary vegetation dispute. Will check how much a legal exec will do vs the lawyer will do.

by Retail shop | 10th May 23, 4:55pm 1683694550

Commercial next to us has had 5 tradesmen upgrading it for a few weeks. Lots of chatting, standing around on phone. Not a lot of work happening. Hate to be paying the bill.

by BeeBop | 12th May 23, 2:40am 1683816015

Yep, I was also quoted $100 per hour by two groups. Found another builder who did the whole thing for 65 per hour. Using him on my next job. We are still going. No slow down for me but I now have a team of preferred trades and suppliers. My costs are now stable again.

Industry has done it to itself. Greedy bu / ggers.

by WestieAJ | 10th May 23, 10:28am 1683671281

If only land prices could fall. Oh wait, they can.

by bw | 10th May 23, 10:30am 1683671433

Yep.

That $500,000 block in Queenstown that 25 years ago cost $50,000 is about to see a retracement in price.

by Shaft | 10th May 23, 10:52am 1683672775

"The Landing" in One Tree Point has seen many drops... and stil not selling

by HW2 | 10th May 23, 11:03am 1683673402

https://homes.co.nz/address/whangarei/one-tree-point/5-lanyard-place/Xr…

CV 2.5 Sold 3.7

by Shaft | 10th May 23, 11:38am 1683675505

Get with the program HW2.

We/i are talking land prices, in "the landing," and new builds.

Your example is in marsden cove , a waterfont house they were wanting 4 millon for and sold a lot lower.

If your still bitter about me being here, despite your dumb prediction of me " gone by lunch time"! , then grow some and get over it.

by ex agent | 10th May 23, 11:55am 1683676518

I also could put up a $5.6m example where I live. The fact is the top end is dead and the rest is weak. It all needs to be lowered in terms of expectations otherwise they will never sell.

by Te Kooti | 10th May 23, 12:02pm 1683676946

What is happening on the ground in the Queenstown region, does anyone know? Nothing seems to be selling but also no real discounting yet, it appears to be stalemate. I have no doubt that if you had to sell in the next 6 weeks then you are dropping your price by 10 to 15%.

by J.C. | 10th May 23, 12:36pm 1683678987

I have no doubt that if you had to sell in the next 6 weeks then you are dropping your price by 10 to 15%.

"I have no doubt" sounds like a hopium-heavy "reckon." How do you estimate 10-15%? Give it some flavor.

by Te Kooti | 10th May 23, 12:41pm 1683679279

Errr, because nothing is selling at asking.....You think a 5% drop will get a place sold JC?

by J.C. | 10th May 23, 12:51pm 1683679868

I have no idea.

If there is no land for sale, why can't the price offers be on the flip side: +10-15%?

by Te Kooti | 10th May 23, 1:10pm 1683681021

Who said there is no land for sale, who would offer 10% to 15% more than asking for a house?

by J.C. | 10th May 23, 1:20pm 1683681649

OK. But you could start at - 25% if you 'believe' 10-15% is a realistic reckon.

by braindrain | 10th May 23, 3:46pm 1683690372

A friend listed his place in Wanaka and over a month plus had zero people attend the open homes and no enquiries so pulled it off the market.

by Shaft | 10th May 23, 10:32am 1683671543

Suppliers reduce thier huge " rainy day" margins.

30% margins of the 90s ae now 50+% for many suppliers.

by Te Kooti | 10th May 23, 10:34am 1683671661

Builders cannot reduce costs. Insulation, carbon, consent, inflation, labour

I disagree, a fall in builders wages is imminent as resi construction slows and the smart cut their rates to find work. That's the whole point of the exercise, to rebalnce demand/supply curve of Labour. I re roofed a place recently and the labour was $100 p/h + GST. I didn't have a choice but I won't pay that again.

by Shaft | 10th May 23, 10:55am 1683672942

Happened in the GFC prices per SqM halved as suppliers reduced margins to get volume.

by DIYman | 10th May 23, 11:01am 1683673273

I reroofed my own house, easy as, bought a new impact driver to do the job, no licence required for own house, started 7am on a Saturday morning , all done before dark, end flashing still to go on, will need to buy a pair of tins snips, or perhaps I'll buy a tin snip attachment for my drill.

you can be sure if work dries up the same people who used to charge $115 an hour will be out chasing work at half that price

by HW2 | 10th May 23, 11:15am 1683674142

How much saving

by IT GUY | 10th May 23, 11:19am 1683674387

I got the 18v Makita shears 2nd hand off trademe, they are great for corragated, the nibblers better for other profiles. make sure you paint the cuts, if you buy high profile guttering people cannot see the cuts of cut at top under ridge flashings etc

by Shaft | 10th May 23, 11:48am 1683676109

You can do your own wiring, plumbing and drainlaying to a point too.

Ive done old school scaled pencil drawings for major house renovations , for council approval. No worries

Eg, - Running wires and plug and switch cońnections are ok but nothing at the switch board and everything checked off by a certified electrician.? Including a earth check

by Te Kooti | 10th May 23, 12:04pm 1683677045

DIY, as keen as I am to have a go it was a brutal job and took 4 full days with 2 builders and me. It was super hot pre christmas as well. Removing the old roof, tidying up all the frame etc, removing old screws, laying building paper, putting the new Colorsteel on, impact driving about 2000 baton screws, putting the flashing on, putting the new guttering in. How you did all that in a day by yourself???? Scaffolding was $6k, Colorsteel and guttering was $11k, tip fee's for the old roof, insulation. I don't think I got any change out of $30k. Costs are higher as it is on the coast.

But then it has rained monsoonally ever since so it was money well spent in the end,

by IT GUY | 10th May 23, 1:14pm 1683681292

I am putting 88sq m on this weekend , stables so easy no ridgelines, IMHO its a v v tough job, you need to build scaffolding so you can walk along at chest height. its a bit beyond DIY in keeness but technically not super hard. Do not stand on the laserlite.....

by Nzdan | 10th May 23, 2:40pm 1683686456

Just got a quote for roughly 150sqm replacement @ $34k incl GST for new corrugate/purlins/underlay/flashings, waste removal and edge protection hire. Standard gable ends with a couple of valleys. Excludes guttering though.

Wife seems to think it's excessive, but maybe it's well within the ball park.

by DIYman | 10th May 23, 8:28pm 1683707317

It's the second roof I have replaced in my life, the first one was 13 years ago, and I paid $2600 for scaffolding then, but this one was single story, 4.8m sheets, 130 square meter house. I had some scaffolding there in case I needed it. Used every screw in the box, just checked, it was 1000 screws in the box. I dont remember numbers like that, but I do remember total cost was $7k, and that in the last six months.

I sold the old roof for scrap, got close to $200, the only thing I regret is not having a bale of batts handy to throw in the ceiling while the roof was off, bit of a pain doing it through the manhole.

by Rumpole | 10th May 23, 12:23pm 1683678214

Minimum wage may collide with necessary wage reduction to lower costs to enable a build to take place, who blinks first or is there another answer?

by HouseMouse | 10th May 23, 10:38am 1683671908

Nailed it, and what I started saying about 2 years ago. It was always going to happen. It will be really ugly in a few months as a whole lot of projects are finished, and much fewer new projects commence.

by HouseMouse | 10th May 23, 10:40am 1683672054

And a reminder that a whole lot of professions that work at the front end of development are going to suffer big time.

by DIYman | 10th May 23, 11:23am 1683674618

Ugly is one way of describing it, but the reality is things have to become more unsustainable, builders flying staff in from outside the region to get the work done. the $100 an hour is due to a whole lot of extra costs which disappear when locals can keep up with the work

by HW2 | 10th May 23, 10:58am 1683673104

An drafting architect quoted me a month ago but I turned him down, he has come back with 30 percent off offer.

To be fair his price was 50 percent higher than others.

by Rumpole | 10th May 23, 12:27pm 1683678458

Wait a bit longer and watch the next price reduction come.

by Nzdan | 10th May 23, 11:32am 1683675178

Surely manufacturers of building materials have enjoyed huge profit margin increases over the past 15 years as the 2 year mortgage rate dropped from an average of 9.4% in 2008 to 2.5% in 2021?

Or are you suggesting these prices have increased in isolation to people's borrowing power?

by Speedmax | 11th May 23, 2:41am 1683729698

How about some improved productivity??

by Dezo | 10th May 23, 10:26am 1683671208

Must be good time to buy?...I have a kid looking but he keeps putting it off......

by nktokyo | 10th May 23, 10:35am 1683671746

Just remember the asking price is meaningless, both in an up and a down market

by nigelh | 10th May 23, 3:11pm 1683688307

Also ignore "offers over $xx" Its a number conjured up by REA to get the listing.

by Shaft | 10th May 23, 10:48am 1683672480

Just wait. When the signs of existing properties prices go up and auctions clearence rates hit 50% for 2 months then the bottom nay have been reached.

End of winter wil be telling.

If Auckland is still falling then the rest of the country will follow except queenstown lakes areas.

Remember there are about to be big public and private staff layoffs as retail dies and govt cuts costs.

Also, many " Covid arrivals " will leave for better oportunities in Aussie, europe... thus freeing up housing etc.

200,000+ people returned during Covid. Many are getting itchy fèet.

by bw | 10th May 23, 11:02am 1683673375

"except queenstown lakes areas"

If you were there in the late '80s, you'd remember what happened then. (NB: Yes, the '87 Crash was the catalyst that hit the local economy hard. And what do we see on the horizon today?) A clue - it suffered worse than anywhere else. Developers selling stock at cost, and throwing in the 'buy 4 and get one free' packages. Hence, my quote above re land there falling from $500k to $50k. It cost $200k to put a place on a $50k block and for a million, you got 5. It kept the work going and the crew together for another day.

by IT GUY | 10th May 23, 11:12am 1683673939

This has a very late 80s feel to it at a domestic and global level. Aussie is special, lucky country never has recessions.

Unless you experienced NZ 1987-93 you probably don't realise whats about to hit.

Nothing can be done now, things needed to be "done" back in 2018-20 , instead of 2% rates during covid we needed normal rates. Now we have are going to have a recession with way way way more debt then was needed. Best advice is to stand well back from the fan and pick up the pieces when the opportunies arrieve.

by Retired-Poppy | 10th May 23, 11:51am 1683676305

I agree. I worked in banking 87-97, I witnessed all sorts of things go down. For the leveraged, its not so thrilling a ride on the downside!

by CN - new | 10th May 23, 1:15pm 1683681303

Commercial real estate in NZ is going to get interesting, especially if there is a recession.

Saw some prices that newbie "mum and dad" commercial property investors paid that were very high and on low cap rates.

Has anyone heard reports of lenders requesting commercial borrowers pay down debt

1) to meet maximum LVR limits (as the valuation of the commercial property has fallen? Or

2) to increase interest coverage ratios (as interest rates increased)?

by speckles | 10th May 23, 12:25pm 1683678343

QT lakes is more vulnerable to wealth changes in Auckland than other parts of the SI. Australia has a big imprint there so may counterbalance somewhat. QT lakes certain has its boom-and-bust history and taken advantage of that in the past.

If you want a SI getaway there are better places to choose.

by Sluggy | 10th May 23, 11:08am 1683673708

I really believe this is just the end of the beginning. Im picking a bloodbath economically in NZ, housing being just one link in the doom chain.

by Averageman | 10th May 23, 10:57am 1683673033

Cost via inflation, cost of debt and min wage etc are going thru the roof. Banks are having their greed clipped via more professional lending requirements. Banks are also focusing on exporting max profits while cutting staff and closing branches, vs re-engineering what and how they do things.

Somethings gotta give, and the winner is.....land prices. Sellers still deluded, but the truth is barreling down just like the giant waves of Nazaré. The longer the current of delusion fights the incoming swell, the bigger the wave will be.

At some point it becomes unsurfable, aka financially unsurvivable.

by IT GUY | 10th May 23, 11:16am 1683674172

As I often say around 50% of the NZ housing stock is probably 75-80% land value with very old improvements... so the correction could be quite profound... Many investors bought Manurewa etc to have 800 sq m that could be developed, these type sites where your tenant pays for your land speculation are IMHO going to be smashed. 10 years ago they where 380-430k sites, they got to 1.2 mil, no improvements have been done. in fact often bugger all required maintenance done as they expected to sell to a developer. back to 430-500k we go

by rastus1 | 10th May 23, 12:16pm 1683677796

I'd agree. It would seem many landlords have purchased and not spent a dime on improvements and minimal on R&M .

They now have a rundown SB.

They have been banking on selling this SB for huge cap gains without maintaining their asset.

So whats their plan now? Renovate or watch it fall apart?

by ozzzy2 | 10th May 23, 11:09am 1683673789

That's great! Maybe now, I might be able to get a plumber for under $200ph who can start next week. (sarc)

by nigelh | 10th May 23, 3:17pm 1683688669

Getting a plumber in NP to do a small toilet job. $100/h excl. About par for the course. I do keep an eye on how long the job takes as labour is only estimated hours.

by Small Kev | 10th May 23, 11:12am 1683673975

It’s not the price, it’s the rent. We need more rooms to rent to those new 50000 migrants and more to come.

by Crazy Horse | 10th May 23, 11:26am 1683674773

Have you ever thought these migrants will just bunk in with family and friends when they arrive - then realise the absurd cost of rent vs. wages/cost of living and make an arrangement with said family and friends to stay on.....while the landlords suffer more damage and wear and tear.

by ZeroCredibilit… | 10th May 23, 11:56am 1683676575

Migrants on a working visa may be forced to return home if the work dries up.

by HouseMouse | 10th May 23, 12:02pm 1683676977

Yes something I have mentioned before

by K.W. | 10th May 23, 1:52pm 1683683578

All those leaving for Australia and who havent been able to sell their house in time have put them in the rental market. There is no shortage of rental properties, which is why rents have not sky rocketed in the cities like they have in Australia.

by HW2 | 10th May 23, 11:17am 1683674262

We dont align immigration and accommodation. So expect another scramble as immigration starts to increase

by Retired-Poppy | 10th May 23, 1:35pm 1683682510

by HW2 | 10th May 23, 11:17am "another scramble" What are you forecasting will happen and when? More instances of overcrowded houses perhaps? Landlords have little pricing power and you already know that. Talk about flogging a Mantra!

by HW2 | 10th May 23, 1:37pm 1683682653

Forecasts for specific date time and minutes you mean

Its funny you should mention rents, I have just issued a 17 percent increase, even that is struggling to catch up to market. Thanks to Gareth and Sam its very easy to see what else is on offer

by Retired-Poppy | 10th May 23, 1:41pm 1683682866

by HW2 | 10th May 23, 1:33pm 1683682401 - Forecasts for specific date time and minutes you mean

No need for silly responses. Just a insightful forecast will do. Prove for once that you've put some thought into it as opposed to "it always has so it always will"

"I have just issued a 17 percent increase" - "Unbelievable"

by HW2 | 10th May 23, 1:45pm 1683683140

Unbelievable is also what one of the tenants said. Four notices, only one has complained.

Our new rents are still in the lowest 10 to 15 percent for pricing in that category but better than average for quality and amenity.

by Retired-Poppy | 10th May 23, 1:51pm 1683683484

Yes, truly unbelievable.....

by HW2 | 10th May 23, 2:00pm 1683684010

If you multiply the annual rent by 20 it gives the capital value.

Therefore higher rents leads to higher values. Those who say inflation is bad for property dont know much.

by Retired-Poppy | 10th May 23, 2:06pm 1683684374

Okay, I'll give you the benefit of the doubt. By what percentage has your rental property in Hamilton increased since Nov-21?

by HW2 | 10th May 23, 3:23pm 1683689027

Quite a bit actually. I know that sounds gloaty sorry. Hamilton is growing well, without aucklands floods and aucklands nightmare traffic

I offered a furnished house at mates rates to a friend for 450 but they didn't need it. Spoke to a PM and they got us 590 unfurnished. Tip top tenants as well.

Thanks for the congrats. I knew you'd be pleased for us.

And I trust you have made notes to inform your local mp the system is rigged based on what someone online and anonymous told you ;)

by Retired-Poppy | 10th May 23, 3:45pm 1683690306

by HW2 | 10th May 23, 3:23pm - And I trust you have made notes to inform your local mp the system is rigged based on what someone online and anonymous told you ;)

What anonymous people fantasize about in the Tron is of no consequence to me or my Auckland MP :)

by HW2 | 10th May 23, 4:43pm 1683693786

My fantasy would be to add a zero $5900 per week for our quality home in a top location.

Yours would be taking one away. 59 dollars per week for a rancid home in Ham-milk-town

Either one could happen, nothings guaranteed other than that we will be here in 20 years arguing the same subjects

by Crazy Horse | 10th May 23, 5:18pm 1683695901

HW2 ....if you follow that rule of multiplying the annual rent by 20 for the capital value, most properties in AKL would be "overvalued" - what a surprise !

Anyway, it all depends on how long ago you bought the property ??? ...if you bought a property 20 years ago for $250k and have since paid it off and are renting it now for say $600pw, thats a capital value of $624,000 ....so you are getting a gross return of only 5% less mtce, rates, insurances, property mgmt fees etc etc ....so with a term deposit rate now of 5.7% I know where I would have my money - with a million less hassles ! While I would have "dry powder" to buy at a better price in the near future, as I can't see prices rising for a while - that's a better solution !

While you keep saying you can put your rents up, that may well be the case, however you will find your tenants only cramming in more and more people ....and slowly but surely Auckland in many areas will start to resemble a 3rd world city ...some are already there.

by HW2 | 10th May 23, 6:01pm 1683698507

Don't get involved CH unless you know what you're talking about. Thanks

by Crazy Horse | 10th May 23, 8:43pm 1683708234

Just a generic scenario HW2, while it's totally up to you how you read and interpret it .......so where do I get my "Property Certificate" from, to eruditely reply to your comments, as you are so knowledgeable in this forte ?

by HW2 | 11th May 23, 6:00am 1683741650

Investment property CH is not the same as standard housing, IP is valued on yield plus qualifying factors. And whether the gross yield is 4, 5 or 6 percent the basis of increasing rents leads to increasing valuations.

by Crazy Horse | 11th May 23, 9:27am 1683754026

HW2 ...my original post on this matter was purely written on the basis, that said property was always bought as an investment property.

by Independent_Observer | 10th May 23, 1:54pm 1683683691

"Its funny you should mention rents, I have just issued a 17 percent increase, even that is struggling to catch up to market."

17% rent increase!

Ouch....that is pretty high inflation. Are many other landlords doing the same there HW2? If so, workers will need to ask for a 20% pay rise to be able to pay this increase in rent (as well as the increase in all their other weekly costs of living).

And if this happens, the RBNZ will need to raise the OCR to 10-15% and think how high mortgage rates will be in response then. But then you'll say...my interest expense is too high so I need to raise rents even higher! So then the renters will have to ask for even high wage increases, which will force the RBNZ to raise the OCR even higher again.

This is how a wage/price spiral works.

by HW2 | 10th May 23, 2:03pm 1683684225

It all takes care of itself IO and the mortgage is ever decreasing so I don't worry about int rates, etc. Of course I would like them to be lower. All I can say to you is careful what you wish for.

by Independent_Observer | 10th May 23, 4:38pm 1683693499

"All I can say to you is careful what you wish for"

Is this a threat?

by HW2 | 10th May 23, 5:47pm 1683697624

I dont know how you mean that but take it any way you want to.

Over the last year youve been on here preaching doom and gloom negative real property prices over longterm saying prices dropped 30 pct during the 70s and 80s because of interest rates and inflation. Thats not how I see it.

by Carinaz | 10th May 23, 11:23am 1683674603

"Latest data suggests an approaching downturn in residential construction could be quite severe"

Is this news and not obvious.

by HouseMouse | 10th May 23, 12:04pm 1683677069

Of course things are much worse than even these statistics suggest.

Most of these consents would have been applied for in the second half of 2022. Things have been deteriorating incrementally since then.

Despite that, as I have said before most developers will see through to attaining the consent as they have sunk so much cost by the time they apply for the consent. And an approved consent is worth something. Some will hold, others will sell their land with the consent.

As I have said before I expect build completions to halve from peak. The trough could be around mid-late 2024. There will be many job losses in the sector and the many areas heavily connected to residential construction. This will eventually flow through to spend in hospo, retail etc.

by HouseMouse | 10th May 23, 12:12pm 1683677534

Building consents more than halved after 2006 in NZ (collapse of mezzanine finance, then GFC), even taking out volatile apartment development. See the graph in this article linked below.

Halving now means much bigger impact than the more than halving after 06, given the peak numbers are much higher now.

Fun and games

https://www.greaterauckland.org.nz/2020/11/10/building-consent-surge/

by JimboJones | 10th May 23, 12:48pm 1683679724

It was always going to happen eventually. I hoped the govt would have a plan, but if they did now would be the time to invoke it.

It feels like the same old crap all over again, we have magically gone from too few houses to too many houses in two years, and now we will stop building any significant amount for a decade. Government needs to be building during the bad times not the good times.

by HouseMouse | 10th May 23, 1:12pm 1683681140

No, the time to invoke it would have been more than a year ago. It’s far too late now.

I have said before on this forum that I tried to convince them to act more than a year ago. I have also mentioned that they told me they thought residential construction would only experience a minor drop off…

Was that hopium or based on (totally flawed) analysis? Either is deeply concerning.

A related big issue is how they will fund public house building going forward, given that their model is heavily reliant on market housing construction as a third of total new homes in their development areas.

by WestieAJ | 10th May 23, 12:28pm 1683678492

The building and construction sector contributes 6.7 per cent of New Zealand's real GDP and is the third largest employer of 295,300 people.

by HouseMouse | 10th May 23, 12:32pm 1683678734

There you go. And a lot of other sectors are directly reliant on it.

by JimboJones | 10th May 23, 12:50pm 1683679845

McDonalds are hiring... Although they are probably fairly reliant on tradies too!

by ChrisOfNoFame | 10th May 23, 1:27pm 1683682057

Meanwhile, in the 2nd hand house market people continue to take haircuts ...

106 Victoria Road, Devonport, Akl (lovely house, great spot!)

Bought March 2021 for $3.205m

Sold at auction today ... $2.785m

Cost of haircut? $420k plus agents commission, legal fees, auctioneer's fees, etc.

I really hope the MPC and Orr et al are paying attention.

by nguturoa | 10th May 23, 3:27pm 1683689262

Still someone paying 2.7 mil for a house in NZ. A house.. Walls, roof and carpet. WTF!!!!

by Zwifter | 10th May 23, 3:58pm 1683691098

Just wait till you see the build quality of those Devonport houses when you go to make alterations or do a reno. It would be better to keep the Rimu floorboards and basically set fire to the rest and rebuild the identical "period style" from the outside with a modern interior to the new building standards with double glazing and insulation.

by ChrisOfNoFame | 11th May 23, 9:10am 1683753051

Pre-covid prices coming? How about pre-2017?

168 Saint Andrews Road, Epsom, Auckland City, Auckland

Premo area, DGZ, big section, etc. etc.

Passed in at $2.8m yesterday.

Last sold $2.8m .... in May 2017 !!!

When it sells - if it sells soon - it will go for a bit more.