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05 Jul 2013

Building Consents on the Rise

The construction sector is in a major upswing, with building consents on the rise across New Zealand.  While Auckland and Christchurch lead the way for new builds, economists around the country are surprised at the strength of movement in other parts of the country.  With building consents now at their highest level since November 2007, it will be interesting to see how this surge affects property prices in a climate of low interest rates and house price inflation.

According to figures from Statistics New Zealand, 1752 non-apartment dwelling consents were recorded in May, the highest number since 2,123 in November 2007.  This is a massive 43.7 percent higher than the month before, and 34.4 percent up from a year ago.  While consents have been rising gradually for a while now, the size of this surge has taken people by surprise.  Westpac senior economist Michael Gordon said residential building consents were "substantially higher than we expected in May", adding that previous months may have "masked an even stronger underlying up-trend than we thought".

Lack of supply has been a big issue in Auckland in particular, with high demand driving up prices across the city.  However, with 628 new consents recorded in May, this tide might finally be starting to shift.  While interest rates are still low and lack of supply is not the only factor influencing high prices, consents are up 74 percent from a year ago, giving buyers reason for optimism.  Ongoing construction in Christchurch is also a big factor in these figures, with the Auckland and Canterbury regions accounting for 57 percent of all building consents in May.

When apartments are also entered into the equation, the trend for new dwellings has been rising for the 26th month in a row.  We are still a long way from the long term peak of 2004, however, even with all the activity in Christchurch over the last couple of years. Statistics New Zealand's industry and labour statistics manager Blair Cardno said even though new building activity is 73 percent higher than the historic low point of March 2011, it is "still 37 percent lower than the peak of January 2004." 

While the jump in building consents will raise supply levels over the next year, lack of supply is far from the only factor affecting price escalation.  The historic low level of interest rates is a huge issue affecting house price inflation, as are geographic limits on expansion, an increasing population, and a migration boom in many parts of the country.  According to a recent story from The Telegraph in the U.K, 18 percent of would-be British expats would like to settle in New Zealand, up from only 8 percent a year ago.  

According to ASB economist Christina Leung, the surge in building consents comes on the back of strong house price inflation, which at 15 percent in Auckland, has encouraged more people to build in the city.  While the latest building consent results are promising news for Auckland buyers, "Nonetheless, we would need to see a further improvement in house-building activity given the acute housing supply constraints in the region" said Leung.