Residential building activity is showing signs of flattening, albeit at high levels.
According to Statistics New Zealand there were 2605 dwelling consents issued nationwide for April, which was down on the 2729 for the same month a year ago. In Auckland last month there were 1043 consents, down from 1163 in April 2018.
Recent business confidence surveys have shown a marked downturn in intentions regarding the construction industry. The latest ANZ Business Outlook Survey showed the weakest outlook for residential construction intentions in 10 years.
ASB senior economist Jane Turner said she believes house-building activity is likely close to a peak, "but we expect residential construction activity to remain at high levels over 2019 in order for housing supply to make up the shortfall which has emerged in recent years".
"...Some forward-looking indicators are pointing to a decline in housing construction demand. However, we expect lower interest rates to stimulate housing demand and the Government’s decision to rule out a capital gains tax will likely boost investor confidence."
Westpac senior economist Satish Ranchhod said it looks like the peak in the nationwide construction cycle "is fast approaching".
"We expect this to occur in 2020. In part, that’s due to the continuing winddown of post-quake rebuild work.
"In many other parts of the country, we still expect strong levels of construction activity, but beyond 2020 we don’t expect to see the sort of large increases we saw in previous years (and in some regions there could be modest declines). That’s because after strong increases in recent years, home building activity is now more commensurate with population growth.
"In addition, while population growth is currently elevated, migration is past its peak and we expect it will continue to gradually ease back."
Included in the latest month were consents for 1,659 stand-alone houses, 553 townhouses, flats, and units, 201 retirement village units and 192 apartments.
In the year ended April 2019, the number of new dwellings consented was 34,392, up 7.4% from the April 2018 year.
This brought the tally of consents for Auckland in the 12 months up to 13,754, up 18% on the 12 months to April 2018 and very much at modern historical highs.
Interest.co.nz estimates that around 12,867 new homes need to be added to Auckland's housing stock each year to keep pace with its population growth, and the latest figures show 13,875 new dwelling consents were issued in Auckland in the 12 months to March, up 24% on the previous 12 months.
Stats NZ said in April 2019, the seasonally adjusted number of new dwellings consented around the country fell 7.9, after falling 7.4% in March 2019. For stand-alone houses only, the seasonally adjusted number in April fell 4.2.
In the year ended April 2019, non-residential building consents totalled $7.5 billion, up 11% from the April 2018 year. Stats NZ says this series can be influenced by price changes – non-residential construction prices (as measured by the capital goods price index) rose 4.6% in the March 2019 year.
The interactive chart below shows the monthly dwelling consent trend in each region.
Building consents - residential
Select chart tabs
46 Comments
Or someone who knows how housing markets work has done their sums and thinks that the likeliness of house prices staying as high as they are now is slim, so reduce risk and stick with what you got, in turn land prices will fall as developers aren't tripping over each other to buy, etc etc.
Hi Clemente,
It’s quite possible that house prices will increase across NZ over the next 12 months - and that includes Auckland.......
The denouncement by the Govt of a more comprehensive CGT, continuing drops in interest rates - and now the prospect of fewer houses being built - gives a certain signal.
For me, personally, this is NOT good news. I’d love to purchase a villa in Ponsonby - but there’s nothing on the market that I could afford.
And prices might well go higher.......
TTP
If you were average TTP maybe you would make $400,000 for your household, as apparently this is common, then Ponsonby wouldn't be a dream.
If people can afford it then prices will go up, but if people cannot afford it and they feel that prices are overvalued in the current climate then maybe they will drop. What happens if cost of borrowing increases, there's an external shock, borrowing becomes harder. Even on 400K things may become tough.
We will wait and see.
TTP I know more then 5 who earn over that, maybe more, that's not my point. You said it was common and average. So you should be able to afford in Ponsonby, as its just an average income. But 400,000 is not an average income, maybe in Ponsonby, but I doubt that as well.
But if house prices become greater then 5 million lets say, then $400,000 income is not going to buy you much. So its all down to affordability, there is a ceiling on what people can afford and what banks will lend.
Several sectors of the economy are struggling to keep their heads above water. Fewer residential construction projects could eventually lead to job cuts across the industry. I don't think the non-residential construction sector is large enough to absorb those out-of-job construction workers.
But you're right, this is the perfect time for people to borrow hundreds of thousands of dollars to buy properties in far-flung outskirts of Auckland.
Hi Advisor,
There’s a great deal of new investment in retail - especially across Auckland.
This suggests that retail merchants are confident that consumer spending will remain solid - and buoyed by relatively low interest rates.......
Look at the market for new car sales. It’s booming - and not the only example.
TTP
I read with a flattening of house prices, then there will be less spending, this is from a fellow property person like yourself that wants prices to grow.
He said that less growth then less spending, as people borrow against the value of their house. Which in my mind makes them foolish, but people do feel richer with house price growth.
As for development growth, if prices drop then these guys may lose a bit of money on their investments, or if they want to break even they may even have to drop prices.
1. House prices have trended down in Auckland for three years, yet there is a housing shortage.?
2. Statistics New Zealand building consent data is unreliable, but its population data, both nationally and regionally and its migration data which gives rise to the housing shortage meme is accurate ?
3. Barfoots latest weekly auction results post capital gains/ OCR and school holidays saw only 28 percent of homes sold.
4. Confidence in the Auckland housing market has changed while mortgage rates have never been lower.
Hi Cowpat (my bovine friend),
Auckland house prices have not trended down the last three years. Auckland house prices are significantly higher now (May 2019) than they were in May 2016.
Note that Auckland house prices peaked around Oct/Nov 2016. Since then there’s been very little price movement, with reputable commentators describing prices as “flat”......
Auckland rents, however, have risen considerably since May 2016 - as tenants will quickly tell you!
TTP
Agreed TTP. Reduction in supply would put upward pressure on prices. Other factors may mean that these pressures are counteracted or lessened, but you have to be a level 9000 DGM to deny that a reduction in supply would put upward pressure on prices. Unfortunately 95% of commentators here can’t even bring themselves to acknowledge this simple fact.
1) its not a reduction in supply, its a reduction in the increase of supply.
2) if you close your eyes to all other factors, then yes, a reduction in supply would put prices up.. but see #1, and you can't close your eyes to all the other factors.
So saying that its going to push prices up is blind spruiker optimism (TTPs forte). And prices are already falling in Auckland, as confirmed by last months HPI.
1. Headline: "Worldwide aluminium shortage causes huge reduction in supply of new cars, putting upward pressure on prices". Pragmatist in letter to Editor: "Its not a reduction in supply, its a reduction in the increase of supply" Editor: *Shakes head and does not respond*
2. Who said a reduction in supply would put prices up? The claim is that a reduction in supply will put upward pressure on house prices. Clearly stated above that "other factors may mean that these pressures are counteracted or lessened...".
Yeah, so for 1 above, owners would hold onto their old cars longer as upgrading would present a poor value for money proposition. And cars are a wee bit less durable than houses.. car has a useful life of ~15-20years, a house 60+ .. so not really all that comparable.
2... yeah, okay, like thats not you and TTPs entire schtick.. sheesh.
1. Minister of Transport: "Dealing with congestion by building more roads is like dealing with obesity by loosening your belt" Pragmatist: "Roads are far more expensive than belts, and roads are congestion free at night, but fat people are fat 24/7, so not really all that comparable." Minister of Transport: https://media1.tenor.com/images/46d73c3cc50fa32e0e1d8c2a38007477/tenor…
2. Read my words, not what you guess I'm thinking.
"Global diamond supply expected to decrease this year" http://www.mining.com/web/global-diamond-supply-expected-decrease-year/
Complain to these guys and tell them that its not a "decrease in supply", its a "reduction in the increase of supply".
Your durability argument doesn't make sense. Nevertheless, I'm sure you don't think that houses are more durable than diamonds.
BHSL so if we had 1 million houses being sold at $5 million dollars, and we had 1.2 million buyers who earned $50,000 a year, would house prices go up or down.
It doesn't matter how many buyers or houses we have if we cannot afford them. The overseas tap has been turned off.
So you know that thing where house price growth declines doesn't mean the same as house price declines? Similar to increase in consents slowing not being the same as numbers of dwellings declining, no?
Either way houses aren't selling well already and we have a backlog of unsold new homes sitting vacant already. Check this out - maybe it's why:
https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12…
Happened in Az. Massive price growth fuelled construction levels insanely. When the market started to tank there were already far too many homes in construction. Didn't end well.
Look at the annual property tax we pay here in NY . Sopranos house just went on market
https://www.nytimes.com/2019/05/31/realestate/tony-sopranos-house-for-s…
That’s US$34,000 a year on a property worth just a couple of million ( house values in area range between 1.5 to 2 plus million )
Compare that to the pittance the wealthy in Auckland are paying
In Auckland it’s the low & middle that shoulders the burden for the city & another reason why Auckland super city is in extreme debt & is behind on infrastructure like just basic rapid transit initiatives
https://www.northcaldwell.org/inc/searchresults?s=Property%20tax%20rate…
Interest.co.nz estimates that around 12,867 new homes need to be added to Auckland's housing stock each year to keep pace with its population growth, and the latest figures show 13,875 new dwelling consents were issued in Auckland in the 12 months to March, up 24% on the previous 12 months.
Are we comparing apples with apples here, David? Forget the small number of houses that get consented but are never built; as we've discussed before on this website, that makes up 2-3% of consents.
Is it fair to assume that a decent number of dwellings are consented as part of a redevelopment project, therefore all the dwelling consents won't necessarily add to the existing housing stock as some should be counted as replacements? Do we have any data to analyze those numbers or percentages.
Probably the same thing happening in Auckland as in Sydney - developers who have built into the residential "housing shortage" have found themselves sitting on bucketloads of newly built homes and sections that they can't sell, because there is also a shortage of people who can afford to buy them. Extrapolating a supply shortage based on the number of people (high number of immigrants) ignores the fact that demand is reducing, as locals and immigrants alike dont have the cash for the deposit, can't meet the servicing requirements for a mortgage, and thus can't afford to buy a house no matter how many are built and made available for sale. The only cure for this problem is lower house prices.
The only cure is lower house prices or replace low paid poor immigrants with wealthy, well paid immigrants.
Replace INZ bureaucrats attempting to identify skills in the way Russian central planners used to do with a simple dutch auction - if that was 12,000 wealthy immigrants arriving house prices would remain high. Hard to attract 12,000 wealthy families to Auckland if better opportunities for work and housing exist in Australia.
"Interest.co.nz estimates that around 12,867 new homes need to be added to Auckland's housing stock each year to keep pace with its population growth, and the latest figures show 13,875 new dwelling consents were issued in Auckland in the 12 months to March, up 24% on the previous 12 months."
Corelogic say that 70% of building consents result in net additional dwellings. In part due to the consented units not being built, and in part due to existing dwellings being demolished to make way for newly consented ones.
Correct me if I'm wrong, but this article seems to be indicating there isn't much of a housing shortage now, if at all, in most of the country including Auckland. Building is keeping pace with demand, if not outpacing demand. Certainly, there are a lot of places for sale, and a lot not selling quickly - at least at current asking prices.
MBIE says there is a pre-existing shortage of over 40,000 houses in Auckland alone. So even if you start to eat away at that by outpacing population growth, it would still take years to get rid of the “shortage”. And the number of houses consented doesn’t equal the number of houses built. Core Logic says only 70% of building consents result in net additional dwellings. If that is true, we still aren’t building enough to keep up with population growth (if stats NZ’s immigration numbers can be believed).
BLSH, yeah as you know I’m not convinced on the reliability of the housing shortage numbers. It’s not like it hasn’t happened before in various places with housing bubbles, that a shortage has turned out to be non-existent or way overblown. This article posted here the other day seems apt. I guess we’ll find out soon enough.
https://www.irishtimes.com/news/dublin-housing-shortage-to-continue-1.8…
Well it’s true that I’ve been less than optimistic about the Australian and NZ property markets since about mid-late 2015 (sold a place in Auckland early 2016), unlike the 10 years before that. The 20%+ capital gain years in Auckland confirmed the near end of the bubble for me.
No way there can be a decline industry wide with all the building regeneration that the healthy homes legislation is triggering. In Sweden they have millions of old houses built post war that are deemed obsolete and are due for replacement. Our crude attempt at replicating a rental property sector in the 90s was established with already antiquated housing stock (old cold state houses or desperately under maintained villas from private sector stock) which are long past being acceptable in the face of rents demanded. The whole lot have to be renewed, theres decades of work in there sitting for the taking...and the construction sector is whinging asking for a pipeline...what next? Do you want me to make the cups of tea at smoko for you too?
I think you are severely overestimating the amount of work being generated by the healthy homes legislation.. Installing underfloor insulation and a few extractor fans (for the minority of places that don't have them) doesn't require much in the way of builder/plumber/drainlayer time. Yeah, the heat pump guys will get busy, and sparkies a bit busier to to supply power connections for said heat pumps and extractor fans.
PLEASE could you stop referring to a 12,700 shortage in Auckland based on population???
Population does not equal: can afford!
Also, shortage of what type of housing?
There is a huge stock overload in Rodney of 4 bed property which is NOT selling.
Why not? If there is, as you endlessly repeat, a shortage?
Nothing to do with the price then?
Or the 42% drop in sales over $1.2m in Albany Ward, by way of example, in last year?(last 4m compared to a year earlier)
Formulas do need to be tested, rather than simply used regardless.
Good quality 3 bed houses for rent - now , there is a shortage of that.
Owner occupation, when Stats NZ gets it's figures out eventually, will be under 50% in Auckland.
Good news for the rich landlords but not a future of asset based wealth for the other half of the population.
A few homilies on price.
Price is not determined by supply in housing in Auckland.
It is determined by what bank will lend. banks lend more because it takes longer to repay and so they make MORE interest than on a shorter loan at a higher rate.
This, in turn, mostly relates to income multiples and banks view of risk.
There is plenty of supply in Rodney of 4 bed houses over $1m. Unfortunately, sales are not supporting view re supply "shortage" because there isn't one.
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