Although the downturn in residential construction is well underway, the latest figures suggest the worst is yet to come in Auckland.
That's because residential construction in Auckland has been propped up by a large pipeline of work caused by a surge in residential building consents between March 2021 and December 2022.
The graph below shows the relationship between the number of dwellings consented in Auckland since January 2020, and the number of Code Compliance Certificates (CCCs) issued for new dwellings in the Auckland region over the same period.
Building consents are issued before construction starts while CCCs are issued when a building is completed. On average there is about a two year gap between the two in Auckland.
What the graph shows is that up until November 2022, the number of homes being consented exceeded the number of homes being completed by a substantial margin. The difference was particularly large between March 2021 and November 2022.
That suggests a substantial backlog of work built up over that period, as the rate of construction failed to keep up with new projects being approved.
But by the end of 2022 the building industry was starting to catch up. And in May 2023 the number of homes being completed overtook the number of homes being consented in Auckland. That has remained the situation since.
That was caused by an increase in construction and a decrease in new homes being consented. This suggests the high level of residential construction activity Auckland has experienced has been sustained by the backlog of work that built up between March 2021 and November 2022.
But that back log will have to come to an end sooner or later, and the graph below suggests it may be sooner rather than later.
So as tough as the residential building market is in Auckland now, in the not too distant future it's likely to become a whole lot tougher.
You can have articles like this delivered directly to your inbox via our free Property Newsletter. We send it out 3-5 times a week with all of our property-related news, including auction results, interest rate movements and market commentary and analysis. To start receiving them, register here (it's free) and when approved you can select any of our free email newsletters.
49 Comments
This is going to be a slow burn story. I sincerely hope this downturn will force out those with unrealistic expectations and transaction to those orientated towards houses being for living in. Despite falls to date, cost of existing dwellings remains unrealistic therefore expectations of further falls is realistic.
Consents and completions are strongly linked to interest rates.
We have further to fall but things will start picking up later next year. How much they pick up is dependent on how far interest rates fall.
the government’s underwriting scheme will also offer some support
"the government’s underwriting scheme will also offer some support "
Indeed. The wrong kind of support, though.
Their 'intervention' distorts the market. (To say nothing of cherry picking winners and nodding to donors.) It would be far better for NZ Inc. - and economic balance - if the RBNZ acted decisively instead. Or put another way, at this time only the RBNZ can turn the tide that re-floats all boats.
"Consents and completions are strongly linked to interest rates."
To an extent. And in 'normal' markets. I have no way of knowing for sure, but I expect a lot of these consents were 'spec builders' that assumed prices would keep rising. The reverse is happening and prices have fallen. Thus their 'get rich quick' spreadsheet calcs would look very different now. Many of these 'spec' consents may never get built, or not for a very long time.
"We have further to fall but things will start picking up later next year. "
I could have sworn you said that a year ago? (I'm jesting. I haven't looked.)
Wowee…have a shot at dodgy developers sinking under their own greed maybe but most tradies I’ve had work for me have been pretty genuine fellas, if they work hard & end with a ranger then good on them…my son had braces recently, with your attitude I should’ve slashed the dentist’s tires eh, his “hourly rate” was a lot more than the joker who did our plastering 🤷🏻♂️😂
I think that a good chunk of the houses being consented at the moment represent development on plots of land which were bought ages ago by developers who have found that they could not onsell this land for anything like what they bought it for. So they are having to grit their teeth and go ahead with their development. So I expect that these legacy projects are making things look rosier than what things would otherwise be.
It's also easier to sell with RC, does not mean they get built anytime soon, the economics are not there.
You would think with all the Spruikers on here lined up to by them it would be gang busters, however it appears there are few off the plan Spruikers buying these builds. Do as I say not as I do?
Yes, they will try to dig their way out of a financial hole, hoping for a return of the high capital speculative growth of old.
But these are the very policies the Govt. is trying to end.
At best, they will have to fire-sale their way out of it, before the policies that allow truly affordable housing to be built kick in.
It's a conundrum. House prices would need to go up to make building viable amd therefore retain the skilled workforce. As much as people want to see more affordable housing built I can't see how that is possible. Land, products, labour, and associated compliance costs generally only go up. Freeing up land seems the intuitive answer to lowering land costs however the devil is in the detail and its not cheap making land available to build on
We don't really vote for much of this stuff. We just vote in the representatives, who interface with our bureaucratic regime. And anytime we can identify or experience a new hazard, we add to the bureaucratic pile.
And the representatives are usually responding to the loudest cries.
The Supply is there. We don't have a housing shortage per se, but an inequitable distribution of ownership.
If someone with 100 houses, say, has to sell for whatever reason (age, for instance. They've been building their portfolio for decades, and selling now to enjoy their final years is upon them?) that's 100 existing houses that will come to market at prices that will undercut the primary builders. Multiply that by those who have 50; 25, 2 and that's a lot of second-hand, cheaper Supply that could come to market (again, for a variety of valid reasons).
Yes, but the real point to take out of this, is that under previous restrictive conditions, you could put an older, poorly insulated, etc. property on the market and it would sell at a higher price that did not take into account the poor house amenity value compared to a new (but still overpriced) house.
As demand falls off, then it is these older properties that will take the biggest paper hit. The sellers could still be happy with the outcome but just not as happy as in the older system that allowed speculative price gouging.
Arguably those older houses have much greater amenity than newer houses. They are on larger sections so they have lawns for the kids/pets to run around on, space for vegetable gardens, fruit trees etc. They have double garages, and workshops. They are properly oriented to the sun. Even if it cost an extra $500 a year in electricity, that's still cheaper over the ownership period than paying $100-$200k more for new build on a postage stamp sized section with a single garage.
We havent even hit the bulk of the baby boomer downsizers yet. The average age of entry to a retirment village is 75-80 years old - the oldest baby boomer is currently 78. There are a lot of large family homes about to hit the market.
https://newsroom.co.nz/2024/02/28/ungrateful-baby-boomers-pose-new-chal…
Hardly surprising, the cost of building is out of control.
It took me 6 months and thousands of extra dollars to get my new build over the line with the Council. Which will be the reason many new builds are GJ Gardners.
Less new houses means everyone's going to pay more for existing ones.
Would there be many tradies working for them if they pay the worst? Before the downturn they'd unlikely to able to secure tradies if they were that bad. Suspect they make their money on the extras and changes of scope which 90% of the people are unaware of because they don't read the contract.
A few years ago had a GJ salesman come over to discuss a potential build. Came to a broad discussion on the contract and he mentioned it was fifty pages. I said I'd read every one of them and that's the last i heard from him.
Would there be many tradies working for them if they pay the worst?
They often cop people not good enough to work other places. Or younger guys starting out, or larger firms who have so many staff they're relying on high turnover themselves.
They're also generally good at paying, and have a large market share, so if someone wants the security of consistent work at lower rates they can be an attractive option.
Wingman logic:
Economy good = house prices go up
Economy bad = house prices go up
Any natural event = house prices go up
Everyone leaves the country apart from Wingman = you guessed it... house prices go up
Not a sole qualifies for a bank loan due to crippling unaffordability= house prices go up
It's like listening to one of those fisher price plastic toys with the big button on the top. "House prices up"..."House prices up"
Change the record!
Labour costs up, material costs up, subdivision costs up, Council costs up, insulation costs up, architect costs up, land costs up, legal costs up, consenting numbers down.
And we're supposed to believe that new house prices are on the way down. Good luck with that one Tommo.
I'm open minded Wingman. Prices may rise, they may continue to fall. I do feel that we are at a very interesting junction though. Residential property (today), is a crap investment...unless like yourself, you are taking risk by building. (And credit to you).
I am curious to the long term future of investing trends in NZ? Property will likely not be the cash cow it has historically been, and TD's becoming less attractive by the week. It's an interesting time..
Well to state the obvious - if material costs and labour costs go up but house prices are static or go down - Then land values fall. We are starting to see this but we have to get rid of the idea that land prices always go up. I know that some will complain about infrastructure and consenting costs - but they are still a small proportion of a section price.
How do land prices go down when there's miles of red tape and legislation which takes years to get through Parliament? All that's currently occurring is a talkfest.
Why would anyone sell their land cheap? Why do Chinese buy land on the outskirts of Auckland and sit on it? They're not worried about this generation, they're looking at a couple of generations down the track.
https://www.opespartners.co.nz/property-markets/house-price-predictions
I know that some will complain about infrastructure and consenting costs - but they are still a small proportion of a section price.
Depends on the section, but often 1/3 of the cost when you buy a section is in the compliance and infrastructure.
I could give you a piece of land for free, and you'd have to spend $150k before the digger arrives to level the site.
Given the financial states of many councils, could you see them wanting to charge less, or more again in the future?
How many people on this site have actually built a house, did the resource consent themselves, submitted the consent application, put the Gib up, fronted all the council inspections, and paid all the specialists like the roofer? The cost of building is not as high as everyone is saying and it's not going up, $2000/sq meter is very doable. SG8 framing costs $3/meter at my local hardware store, yes thats correct, and it's nice and straight. A new hot water cylinder was $500 , LED downlights are $11 each if you buy 40 or more. Nailguns put nails in faster than hammer ever could, nails are $25 for a 1000 at trade depot , stormwater fittings are $3 or $4 at trade depot, stormwater pipe is $7 a meter.
I'm involved in construction and have worked on a fair few houses.
The bits and bobs can be cheap in isolation but the labour and compliance to turn them into a house are another story.
$2k is the entry level now. It also excludes things like driveways and landscaping. And 5 years ago it was $1500.
I just completed a fairly high end stand alone build in Auckland where I manged most of the above. Approx 375sqm. Ended up at around 5k a sqm. A mate does a similar thing and also spends 5k+ per sqm
I'm predicting the next build will also end up at a similar rate. Prices are not going up however their not really going down either. Perhaps on a few items such as steel and cedar. The new healthy home regs have just kicked in so that will cancel out any savings.
The old adage that it was always cheaper to build yesterday still mostly holds up.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.