The downturn in residential construction appears likely to hit building activity in provincial centres at least as hard as the major centres, and possibly harder.
The latest figures from Statistics NZ show building consents were issued for 2931 new dwellings throughout the country in March. That's down 26.2% compared to the 3971 consents issued in March last year.
However there were significant regional differences, with the six biggest declines all occurring in smaller provincial regions - Marlborough, Gisborne, Tasman, Taranaki, Manawatu/Whanganui and Hawke's Bay.
The major urban areas in the upper North Island - Auckland, Waikato and Bay of Plenty, also showed major declines, see the table below. However, these declines weren't to the same extent as most of the provincial centres, while consent numbers were unchanged in Otago, and up by 27.9% in the Wellington Region.
Northland, West Coast, Southland and Nelson also went against the trend and posted gains in March compared to a year ago, although the number of consents issued in Nelson, West Coast and Southland were very small.
When aggregated, the figures show substantial declines across the country, with consents in the North Island down 27.8%, with South Island consents down 21.2%.
Similarly, there were substantial declines in consents for all building types, ranging from -21.1% for stand alone houses to -32.9% for retirement village units (see the table below).
The effect of those declines on the finances of all companies involved in residential construction, from builders and subcontractors to materials suppliers, is likely to be severe.
The estimated value of new dwelling consents issued in March was $1.302 billion, down $474 million (-26.7%) compared to March last year. On top of that, the value of structural residential alteration work consented in March fell $17 million (-7.4%).
Those figures suggest the downturn in residential building activity is likely to affect the entire country, with no particular region or property type likely to escape its effects.
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66 Comments
No surprises really with the new build costs coupled with current interest rates. Houses only get built if the builder can make a profit so less builds and prices go up as a result, its a supply and demand equation that's always in balance.
"Houses only get built if the builder can make a profit ..."
And profits are down from the outrageous profits - I mean truly outrageous! - from a few years ago.
But adequate margins are still there to keep developers building.
Could not agree more. Boy has the last 3 years been lucrative for the building sector. I know first hand and it’s been cream on the cake. The cake has now lost its cream😢
It's really been a mixed bag. There's been so much work it's not funny, but at the same time it's taking a lot longer to get done. So anyone working to a fixed price or to quantity rates may have found it pretty tough. If someone works on labour and materials it's been better.
This is why we see so many construction companies falling over, the last few years have had businesses treading water, making no excess profits (or even burning money), hoping to trade out of it. Now that new construction is going south, there's no path out for many firms.
Just a reminder that consents does not equal dwellings built, noting that there’s usually a reasonable correlation. It’s likely to be worse than the consent data suggests.
There are still plenty of fools / eternal optimists progressing development plans with the view that everything will be turning around later this year (they won’t). After all, TA said house prices would increase 10% this year! A lot of people in property and development put stock in what he says.
And Greg don’t forget the armies of consultants who will be hit by this - it’s much broader than builders and tradies.
"There are still plenty of fools / eternal optimists progressing development plans with the view that everything will be turning around later this year (they won’t). "
I have two resource consent applications going through the hoops at present. So yeah. I guess I must be a fool or optimist? I also have fours building consents that have gone nowhere for over two years.
So not quite the world you describe then, Housemouse?
Let crash begin.
This is what happens when people in the Building industry get greedy everyone stops can't make anything work anymore.
This is where we are at watch the space.
Errr less houses with immigration still pumping=House price increase. The government need to kill net migration if they want to stop house prices and RENTS increasing. Rents lead the way, this is done on a wim at short notice, a house takes over a year to build. Horribly laggy market its like we are short of houses so lets build some now........1 year later its for sale if you are lucky.
Still plenty of houses being completed or nearing completion. It will be a few more months before completions plummet.
And net migration likely to drop away significantly
My guess is that net losses to population will start in about 3 months. Without jobs people won’t come and there will be a ton of people leaving.
Remember the old line about historical trends not being an indicator of future performance.
This hasn't happened in any previous downturn, and with the whole world effectively catching the same cold, unlikely to be much different this time round.
?
NZ has almost always experienced net migration losses during / after downturns. Sometimes minor, sometimes major
There is a chart here that goes back to 1979. Only net negative SO FAR was Covid.
https://www.stats.govt.nz/news/net-migration-remains-near-record-level/
That was for Non- NZ citizens. Total net migration has often gone negative and almost always linked with economic downturns ie. mid to late 80s, late90s/early 2000s, 2009-2012 (wake of GFC, earthquake)
Ah, so it has - the red line - I thought so!
Going to be crazy round here when people realise our population can decrease. Look and the NZers leaving. That’s crazy!
The young educated future tax payers are already exiting. Hardworking no professional have been for years as well.
And that was only because we were massively restricting anyone into the country.
Not sure why you think this time it'll be different, where these people will be going, and why.
Rubbish.
Maybe in the 80s, but later?
Are you in the game of arguing for the sake of arguing, even if the arguments are ridiculous?
Frankly, it’s strange
I was taking Hughs statement to read population decrease, not net migration.
As far as I'm aware, NZs population hasn't decreased for nigh on 200 years.
Yawn
clearly it was about migration flows
have a nice day
And he was talking about it being unprecedented. Which I deemed to be an actual population decrease.
Near term = net loss through migration, long term loss through demographics.
It’s a bit of a spiral that once it starts it get a bit of momentum IMHO of course.
I guess if NZ somehow enters a permanent depression the rest of the world avoids, you may be right.
Think about the future not the past.
Demographics are changing and it’s too expensive to have kids… births are holding flat at best and deaths are ramping up.
There is a good chart here that goes back to 1935. See the ramp up from 1950, well, funny thing, they die. We all do.
It was unheard of not to have kids 10 years ago. Now it’s much more acceptable and also impacted by the openness towards being gay (yes I know they can, but they have fewer).
Times are a changing.
https://www.stats.govt.nz/news/lowest-natural-increase-in-80-years/
The nature of procreation has fundamentally changed in the past few decades globally.
NZ will be a less shitty place to habitate for decades to come.
We had the ability to transfer through economic classes. That has now gone. To me that’s huge.
Great debate anyway, thank you.
So where is that ability higher?
It's one thing to identify what's going on here, but we are running a near identical system to most places. I'd actually argue most places are worse, based on what I've experienced and read.
We have a neighbor with immense resource wealth muddying much of local perception.
And then there's the other elephant in the room, with the Ockers pilfering our Doctors, Nurses and Policemen (to name but a few) by the 1000's with $20k cash incentives.
Don’t let the past hinder your view on potential outcomes. NZ has become a very tough place to live and work.
After the GFC we had a number of levers to pull and this time we are far more restricted.
Do you keep track of world affairs much?
This same issue is occuring basically everywhere, especially anywhere a kiwi would move to as a prospective "leg up".
True, but surely people will come because for our Arts and Culture, especially with these guys in charge of promoting it. See articles below, calibre of ministers is definitely improving sarc/ ( I genuinely thought the first one was satire)
We've lately been gaining international media attention for
1. Repealing world leading tobacco laws
2. Getting the fossil of the year award at COP28 for reopening fossil fuel exploration
3. Having a minister in charge of arts who hasn't ever read a novel (he says he read Once Were Warriors but we all know he watched the movie)
https://newsroom.co.nz/2024/04/29/acts-arts-spokesman-once-watched-a-mu…
https://amp.theguardian.com/world/commentisfree/article/2024/may/03/a-n…
People mainly come because they deem it more attractive than wherever they are. For an American, it's often because of how much worse their politics is. For someone from the developing world, it's the much higher opportunities. If they're English, better weather, better pay in some areas (a nurse earns half as much in the UK), Brexit, etc.
I live in an area full of high earning immigrants. My anecdata and gross xenophobic ridden generalisations as follows:
There is a whole bunch of finance/banking types who came because of the Hong Kong situation. They will probably stay but are also constantly complain that compared to NY and London, there isn't much to do in Auckland, they take lots of trips to Sydney and Melbourne to get their city fix.
Brits who came for a better place to bring their kids up. Cost of living and draw of family is combining to lessen the appeal, 3 families recently went back to UK (although to be fair 2 made the decision before the coalition came in and I think it was more to do with Covid travel bans making them feel imprisoned)
South Africans, mostly white - they'll stay and we can probably attract some more. However they do come with baggage, they are used to ghettoes and gated communities, good people but have no issue with accepting what we would consider massive inequality.
US, fall into two camps. The ones that came for the liberal left wing utopia. Willing to accept higher cost of living and opportunity because they wanted to live in what some here would call a woke country. They are generally massively disillusioned with the current direction. Hard to stay if they'll stay. They are definitely not recommending any of their family/friends come over. The others are people on contract to big multinationals giving New Zealand a try. None are staying.
Europeans - hardly any. Some brazilians, couple of Russians that broadly keep to themselves.
No Indians, hardly any Chinese and practically no Australians.
I'm not seeing where we get the future influx of high wage skilled migrants from? We're losing our competitive advantage compared to other cities for those types (and yes it's cities, not countries we're competing with)
Zwifter, your high migration ALWAYS leads to higher house prices is so seriously outdated it's becoming a joke. To assume that the recent flood of migrants were cashed up to the gills was a flawed assumption not backed by any statistical fact. Due to current affordability constraints, can you deny there exists a current glut of over priced houses for sale that not even migrants can afford? The only way to fix this is to provide a plentiful supply of cheaper homes. There is an adjustment in progress that will will correct this over an unspecified period of time. It might be short and brutal or it might be more of a stall over say 5-10 years where prices are still falling when adjusted for prevailing inflation.
Patience is key and despite your ridiculous assertions that last August to October was the final opportunity to buy, time has proven there is no hurry to buy.
I also think it's important to get people into their own homes but not at the expense of their emotional wellbeing and/or finances therefore some are better off renting for a while while saving up or simply renting for life - whatever works.
It would be useful to see exactly what skills sets our migrants have. It would tell us a lot about their likely salaries and wealth. I suspect most are unskilled and fairly poor but would love to be proved wrong.
Can’t remember who it was but recently I heard someone talk about cheaper homes…he was a builder saying we can have far more affordable homes now…but people don’t want them because an affordable home is three bedrooms, one bathroom, one family room & a detached single garage…it isn’t 280m2, the kids might have to have bunks & share a room, the telly is in the lounge not one in the media room with another in the living dining, the bathroom won’t be fully tiled, there’s no butler’s pantry, the master won’t have an ensuite nor walk-in wardrobe, the “outdoor entertainment area” is a deck or patio you build over a few weekends down the line when you can afford the materials…he described the kind of house a fair few of us were probably raised in (& no I’m not some 70y/o talking about the golden years)…but he said it’s just not what people building houses want. I thought it was a pretty interesting perspective, I guess with land prices high & the cost to build still not “cheap” people feel that after they’ve invested that much to get to the building stage they need to build more extravagant homes to justify it maybe?
Most land seems to have covenants on it preventing such homes from being built.
If he's not just a carpenter (so an owner or someone involved in the cost process), it won't just be the size they'll be complaining about, it'll be the $100-$200k that needs to be spent before you pour a slab. It's still $500k or so to build the house you're talking about, before you factor in the land.
It's a false equivalence to say it's more affordable if it is less.
What they are saying is that on a like-to-like basis, can we make savings in the system so housing is more affordable? This is what makes it comparable. This would apply right across the board for any location, density, and housing type.
The answer is yes, approx. 1/3 the cost of a NZ land/house is made up of non-value added costs. What can also be called waste and inefficiencies in the system, which if removed would not change the amenity value of the property.
Of course, what is waste to one person is income or equity to another, hence the resistance by many to any changes.
I guess with land prices high
Yes that's it in a nutshell. Buidling is so much more efficient than in the 60s so its not the build cost or shouldn't be. We also import cheap bathroom and kitchen fittings from "Chyna" so the average family should still be able to have it all. Councils have locked up land, and consents are far more complex
Gone are the days of fiddly copper and clay pipes, the builder having to do all the measuring, cutting and nailing everything, using a hammer or a nail gun with air compressor, and buy dog rolls for the onsite security guard
You don’t put a $200,000 house on a $600.000 section. It’s just not the done thing.
Covenants also rule it out.
Patience is key and despite your ridiculous assertions that last August to October was the final opportunity to buy, time has proven there is no hurry to buy.
It's also proven the fairly linear assumption of a sudden increase in interest rates creating a massive sell off and bargain basement house prices to be totally wrong.
Like, eventually you may get cheaper house prices after lifting interest rates, but there's a lot of dots in between the rate going up and cheaper prices, but it includes a lot of other things occuring, like job losses and insolvencies, because of the high interest rates.
If there's any sort of longer term 'adjustment' going on, it's not going to include improved housing affordability, it's just going to be deteriorated living standards all round.
Or, it'll be rinse and repeat by the central authorities, money printing, and after a couple of years of high migration, and reduced building making affordability even worse than it was.
Mail Drop from our local RE agent:
Welcome to Our Real Estate Update
The real estate market is gaining momentum, and as we bid farewell to daylight savings and rug-up for the cooler days, a resurgence of market interest is evident. End.
What bloody planet are these folks living on. It’s outright cruel the lengths they go to sell a shed or 2. It leaves me speechless.
"What bloody planet are these folks living on. It’s outright cruel the lengths they go to sell a shed or 2."
Property promoters need to earn commission income to pay their living costs (mortgage, food, etc) & to keep their job. Non performers are potentially on the chopping block.
Zwifter
I have 12 immigrant worker in one of my property not one of them will be in a position to buy a house in NZ in the next 10 years so forget about that market.
There is only 1 that has the work ethic we are looking for also.
With that 12 workers they are hoping to all bring their family which would make 50 people in total.
Something not sounding or looking right here wake up NZ on the wrong track here once again.
Letting in nothing but riff-raff since 1840.
Zwifter
I have 12 immigrant worker in one of my property not one of them will be in a position to buy a house in NZ in the next 10 years so forget about that market.
There is only 1 that has the work ethic we are looking for also.
With that 12 workers they are hoping to all bring their family which would make 50 people in total.
Something not sounding or looking right here wake up NZ on the wrong track here once again.
A bit of a Mexican standoff.
Developers and Homeowners sitting on overpriced properties not wanting to take a paper or real loss by accepting a new reality, and First-time home buyers who can't purchase until some downward adjustment, and other cashed-up investors are waiting for a clear sign we are at the bottom of a bust.
And of course, the banks with a foot in both camps trying to make sure whatever happens they will be OK, even if no one else is.
And the Govt. saying they have new policies that will come in and make land, and development more affordable going forward. Thus saying the continuing speculative boom that this status quo system has cyclically repeated may never appear again.
My money is still with the Coalition on what they have promised and have passed to date, although it was also with Key and National, and Twyford and Labour before they, in JK's case did nothing, and in Twyford's case, did the wrong thing.
National identified there was a problem that needed central govt attention that couldn't be left to councils. Then set about developing solutions
Labour just threw unachievable targets to bait voters without a skerrick of a plan
In effect they have a tool they can use to increase credit/sales growth, reduce inflation and increase employment without having to increase government borrowing. All they need to do is open up a lot of land for development one way or another. That might be upzoning, it might be greenfields or it might be a right to build.
It's not just a standoff between developers/homeowners and FHBs - the banks are coming in as well as being very cautious.
Anecdotal evidence suggests that there will be a lot more requirements for private valuations in the event a FHB wants to purchase at a price above QVs algorithm-based market valuation - regardless of the purchaser's ability to borrow (and pay) a mortgage at the level needed for the price they want to pay..
Just another hurdle in an already slow market. But you can't blame the banks given the market volatility.
I mentioned banks.
And all banks require a panel valuer to value the property. You can't just choose your own, or use CV.
oops, so you did!
What's a 'panel valuer'? You mean to say you can't just get QV to do a private valuation? Does the bank send out a valuer of their choice and the borrower pays?
Edit - just looked it up myself - it's a registered valuer and QV are one of those listed in the blurb I read. All good.
"Anecdotal evidence suggests that there will be a lot more requirements for private valuations in the event a FHB wants to purchase at a price above QVs algorithm-based market valuation - regardless of the purchaser's ability to borrow (and pay) a mortgage at the level needed for the price they want to pay."
The reason for this is that the collateral (i.e residential dwelling) is the secondary source of repayment of the mortgage for lenders. The primary source of repayment of the mortgage for lenders is the borrower's income. Most owner occupier mortgages are income based mortgages where the primary source of loan repayment is the borrower's income.
E.g. if a borrower loses their job, or is unable to pay higher interest rates, then the lender can request the borrower to sell the residential dwelling to repay the mortgage balance outstanding. If the borrower is unwilling to sell, the lender initiates proceedings for a mortgagee sale. If the property valuation is overvalued, then the lender may incur a shortfall on the outstanding loan balance. (e.g mortgage loan balance outstanding $1,000,000, house sale proceeds $700,000 - means a loan loss to the lender)
I would also think that under current property market conditions, valuers are going to be more conservative in their valuations.
Happened 6 months ago here in Nelson. Major redundancies as a result.
If there was ever a time for government to get large tracts of land zoned for development it would be now, they need the employment a building boom would generate to counteract their fiscal policies.
We have a cost problem more than a housing problem. Zoning land is not going to be enough to fix it.
Disagree. The only way to make building stack up right now is to get cheap land, either on the fringes (I don't think it is ever that cheap after services) or density. As an example there is a place near us just completed, looks like 10 units on one 1/4 acre section. If they paid $1.5 mil for the section, built each one for $500k, and sell each one for $750k, that is $1 mil profit. They would have had to get resource consent to get those 10 units on there, so there is a time / cost / risk factor compared to looser planning rules.
I don't think the cost problem is just in NZ. We watch a lot of home improvement shows, it feels like costs have increased significantly in both the US and UK too.
- In the UK, a simple addition and new kitchen cost £135k on Love it or List it this week, they used to do those much cheaper, maybe half that.
- In the US, full do ups without additions seem to be costing ~$200k USD, again I think these costed half that not so long ago.
Right on the mark HughJorgan
Even if they were able to rezone a whole lot of new land with a magic wand, there’s no guarantee at all that this would lead to a building boom.
Why?:
- High construction costs won’t subside over night, in fact they might increase
- High interest rates
- infrastructure costs: if fully borne by the developer (ie. no burden on council) then it’s a lot of $ upfront for the developer. If it’s partly funded by council, then development contributions will be high, also impacting development feasibility
- Land banking: landowners just happy to sit on their land. Maybe there will be some drip feeding of supply
And above all that, you need someone that has a lot of cash and a view they can make a few bob doing it.
Around me (North Auckland) there is actually enough zoned land, it’s just not going to get underway for a long time.
As above - it can still be profitable if you can jam enough units on one section. With land and services costs being so high that seems like the only solution. I guess all growing cities have had to realise that at some stage...
It's a shame that most still don't understand about what it means to release enough land both up and out so landbaking cannot occur.
And if is done the way it should be then the land will be alot cheaper and will counter any construction costs, resulting in more built housing at a no more or even less total land and house cost.
As long as any building boom was coupled with a requirement to hire NZ apprentices for trades training and skill development instead of importing a bunch of irishmen as National did post 2011 EQ because they had cancelled Labour’s trades training scheme which would have resulted in NEETs being given opportunities to learn a few things in the Chch rebuild. Instead, NEETs got boot camps instead of Jobs.
Wow so many here ignoring the elephant in the room that is the global population decline.
It's truly staggering what's happening globally and yet we mince words around interest rates and consent numbers.
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