October 1, 2024 • 6 mins
Construction continues to slow, although consents for office and public transport buildings have risen 26 percent.
Stats NZ says new home consents dropped 20 percent in the year to August - and standalone new builds fell 9.7 percent.
Consents for townhouses, apartments, retirement village units, and flats are down 27 percent.
Infometrics Principal Economist Brad Olsen unpacks the factors behind the decline.
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Speaker 1 (00:00):
In construction continues to slow. Stats n Z saying new
home consents drop twenty percent in the year to August,
with the number of multi unit homes consented the lowest
in the last three years. Brad Olson is Infometrics principal economists,
Good Evening Golder. So what do you make of these numbers?
Speaker 2 (00:17):
Well, look, they're still going down, still down quite a
bit from a year ago, and the direction is still
pointing firmly in that much softer direction. Although it has
been interesting to see the sort of shift that is
now merging between the likes of your standalone classic houses
and your likes of your townhouses are similar. Standalone houses
(00:37):
had been falling a lot more earlier on in the process.
They now are showing those clearer signs in a sense
of leveling out. Not confident in calling it too quickly,
but there is a lot more evidence. The likes of
your townhouses of course, much bigger part of construction these
days compared to say, five years back. They are still falling.
And I think that's just because effectively it takes a
(00:59):
bit longer for those multi unit dwellings to get fully underway.
Long story short, there's still not a lot of green
shoots coming through yet for construction, despite the fact that
those interest rates have started to pull lower.
Speaker 1 (01:11):
Yeah, when we do you expect to see that?
Speaker 2 (01:13):
Well, in a sense, I think it could be a
little while. I mean, when we look at the fundamentals,
we know the housing market still hasn't really shifted around
much yet, And from a construction point of view, there's
probably a lot of developers out there going, well, I'd
have to pay like twenty percent more to build a
house than a couple of years ago. I'd make, you know,
fourteen fifteen percent less on the house when I eventually
(01:34):
sold it. And interest rates they might be coming down,
but they're coming down from a higher position. So at
the moment, that doesn't sort of stimulate a whole lot
of activity on the sort of buyer side, on people
that might be keen to get in again, a few
more buyers that might be coming back into the market.
But you look at those costs still jacking and you know,
compared to you know, people's incomes. If you're own occupy,
(01:55):
you're a first home buyer, it's still not easy to
get money from the bank. If you're an investor, you're
still looking at housing and going, well, my rents aren't
going to make a huge huge hit in contribution to
my income and to my mortgage repayments. So I think
there's still a little bit of time yet. It's probably
one of the later parts of the economy, the construction sector,
that might actually turn around.
Speaker 1 (02:16):
Yeah, there's a lag right on both the way up
and the way down when it comes to monetary policy
tightening and loosening, So it is going to take away
while What about the impact of migration, because we've seen
some massive migration numbers over the last few years. Yeah,
obviously that is starting to drop pretty significantly. So what
will that mean for demand?
Speaker 2 (02:39):
Well, this is a big, big shift, you're right, And
I mean the last couple of years has just been
so topsy turvy. Right, You've had some you know, obviously
a plunge an activity through the pandemic, then you had
a big burst up to the highest levels we've ever
seen in terms of inward migration on a net basis,
and then in recent times that's been you know, slowing
down a lot quicker than expected. Both fewer people coming
(03:01):
into New Zealand than at those peak levels, but also
a larger number of people who are leaving as well,
so you still got population growth, it's just slowing back
quite considerably. And I think realistically, looking at that, that
says that if you look at the housing market, you
look at the building market the next couple of years,
if you've got population growth which is now slowing, you've
still got those high building costs. You don't have a
(03:23):
huge amount of a burst looking likely to come through
on the house prices front, get to income limits and
similar from the Reserve Bank, I think it is one
of those areas where we're not expecting a huge bounce
at all, and if it does come, it's going to
take a while. The big challenge is that the construction
sector the last couple of years has grown so much
to be able to cater with such a high level
(03:45):
of consents that we had at the peak. We've now
probably got a bigger construction sector in terms of workforce,
then we will have going into the future in terms
of a pipeline for residential work. So if we can
shift those people into infrastructure, that might help. But realistically,
like I say, some difficult times still for the construction sector.
Not a huge amount of a turnaround yet. The most
(04:05):
I think we can say is that we might be
starting to find a bottom, but that'll be cold comfort
for many.
Speaker 1 (04:10):
Yeah. Hey, just looking at the government's priorities for legislating
over the next few months. I mean, you've got the
fast track various other infrastructure policies, including the funding and
financing tools for housing, and obviously the Housing Minister Chris
Bishop is looking to make some pretty significant inroads here.
What role do you think central government policy might play
in speeding up construction. I think for a lot of
(04:33):
the options that the government has on the table in
its latest quarterly Action Plan are important long term for
construction and generally for New Zealand's economy. You know, some
of those changes will set us up better in the future,
but they are unlikely in my mind, to have an
immediate impact. Probably much more significant is the fact that
you've got education consents across the country.
Speaker 2 (04:53):
They're running. I think they're lowest in about fourteen years
on a cost adjustment basis. Look at the likes of again,
you know, all the talk around hospitals and similar recently
the talk around social housing without any of those government
public sector dollars coming into the construction sector. You know,
these longer plans aren't going to make a huge impact.
(05:14):
But I do think as well the previous government quite
clearly put too much money into the construction sector at
a time when there was already a lot of private
sector stuff. That's partly why we got those high levels
of cost escalation and construction. So I understand why the
government can't spend as much, but it does leave us
in a position now where the private sector and the
public sector both aren't spending as much as we might
(05:34):
all like on construction.
Speaker 1 (05:36):
Yeah, all right, I know we're just over a week out,
but where do you stand at the moment twenty five
or fifty basis points next week?
Speaker 2 (05:42):
I'm still sitting on twenty five, just because if you
look at what the Reserve Bank has said, and they've
said pretty clearly, we should listen to what they say.
They said, Look, here's the conditions for continued interest rate
declines of a normal pace, and we've had that data
come out pretty normally. In fact, you look at some
of the data, the likes of GDP and similar actually
a bit better than the Reserve Bank hope. So I
(06:03):
don't know if there's enough there for them to call
fifty I wouldn't put it out of my mind for
November though, all right, look forward to that.
Speaker 1 (06:09):
Thanks Brad, appreciate your time. Brad Olsen from Informetrics. There
in a couple of minutes on News Talks ed be
the man formerly known as Prince Harry is back in London,
so will he meet with his family? We'll take you
to the UK next score to seven for more from
Heather Duplessy Allen Drive. Listen live to News Talk S'B
from four pm weekdays, or follow the podcast on iHeartRadio
In construction continues to slow. Stats n Z saying new
home consents drop twenty percent in the year to August,
with the number of multi unit homes consented the lowest
in the last three years. Brad Olson is Infometrics principal economists,
Good Evening Golder. So what do you make of these numbers?
Speaker 2 (00:17):
Well, look, they're still going down, still down quite a
bit from a year ago, and the direction is still
pointing firmly in that much softer direction. Although it has
been interesting to see the sort of shift that is
now merging between the likes of your standalone classic houses
and your likes of your townhouses are similar. Standalone houses
(00:37):
had been falling a lot more earlier on in the process.
They now are showing those clearer signs in a sense
of leveling out. Not confident in calling it too quickly,
but there is a lot more evidence. The likes of
your townhouses of course, much bigger part of construction these
days compared to say, five years back. They are still falling.
And I think that's just because effectively it takes a
(00:59):
bit longer for those multi unit dwellings to get fully underway.
Long story short, there's still not a lot of green
shoots coming through yet for construction, despite the fact that
those interest rates have started to pull lower.
Speaker 1 (01:11):
Yeah, when we do you expect to see that?
Speaker 2 (01:13):
Well, in a sense, I think it could be a
little while. I mean, when we look at the fundamentals,
we know the housing market still hasn't really shifted around
much yet, And from a construction point of view, there's
probably a lot of developers out there going, well, I'd
have to pay like twenty percent more to build a
house than a couple of years ago. I'd make, you know,
fourteen fifteen percent less on the house when I eventually
(01:34):
sold it. And interest rates they might be coming down,
but they're coming down from a higher position. So at
the moment, that doesn't sort of stimulate a whole lot
of activity on the sort of buyer side, on people
that might be keen to get in again, a few
more buyers that might be coming back into the market.
But you look at those costs still jacking and you know,
compared to you know, people's incomes. If you're own occupy,
(01:55):
you're a first home buyer, it's still not easy to
get money from the bank. If you're an investor, you're
still looking at housing and going, well, my rents aren't
going to make a huge huge hit in contribution to
my income and to my mortgage repayments. So I think
there's still a little bit of time yet. It's probably
one of the later parts of the economy, the construction sector,
that might actually turn around.
Speaker 1 (02:16):
Yeah, there's a lag right on both the way up
and the way down when it comes to monetary policy
tightening and loosening, So it is going to take away
while What about the impact of migration, because we've seen
some massive migration numbers over the last few years. Yeah,
obviously that is starting to drop pretty significantly. So what
will that mean for demand?
Speaker 2 (02:39):
Well, this is a big, big shift, you're right, And
I mean the last couple of years has just been
so topsy turvy. Right, You've had some you know, obviously
a plunge an activity through the pandemic, then you had
a big burst up to the highest levels we've ever
seen in terms of inward migration on a net basis,
and then in recent times that's been you know, slowing
down a lot quicker than expected. Both fewer people coming
(03:01):
into New Zealand than at those peak levels, but also
a larger number of people who are leaving as well,
so you still got population growth, it's just slowing back
quite considerably. And I think realistically, looking at that, that
says that if you look at the housing market, you
look at the building market the next couple of years,
if you've got population growth which is now slowing, you've
still got those high building costs. You don't have a
(03:23):
huge amount of a burst looking likely to come through
on the house prices front, get to income limits and
similar from the Reserve Bank, I think it is one
of those areas where we're not expecting a huge bounce
at all, and if it does come, it's going to
take a while. The big challenge is that the construction
sector the last couple of years has grown so much
to be able to cater with such a high level
(03:45):
of consents that we had at the peak. We've now
probably got a bigger construction sector in terms of workforce,
then we will have going into the future in terms
of a pipeline for residential work. So if we can
shift those people into infrastructure, that might help. But realistically,
like I say, some difficult times still for the construction sector.
Not a huge amount of a turnaround yet. The most
(04:05):
I think we can say is that we might be
starting to find a bottom, but that'll be cold comfort
for many.
Speaker 1 (04:10):
Yeah. Hey, just looking at the government's priorities for legislating
over the next few months. I mean, you've got the
fast track various other infrastructure policies, including the funding and
financing tools for housing, and obviously the Housing Minister Chris
Bishop is looking to make some pretty significant inroads here.
What role do you think central government policy might play
in speeding up construction. I think for a lot of
(04:33):
the options that the government has on the table in
its latest quarterly Action Plan are important long term for
construction and generally for New Zealand's economy. You know, some
of those changes will set us up better in the future,
but they are unlikely in my mind, to have an
immediate impact. Probably much more significant is the fact that
you've got education consents across the country.
Speaker 2 (04:53):
They're running. I think they're lowest in about fourteen years
on a cost adjustment basis. Look at the likes of again,
you know, all the talk around hospitals and similar recently
the talk around social housing without any of those government
public sector dollars coming into the construction sector. You know,
these longer plans aren't going to make a huge impact.
(05:14):
But I do think as well the previous government quite
clearly put too much money into the construction sector at
a time when there was already a lot of private
sector stuff. That's partly why we got those high levels
of cost escalation and construction. So I understand why the
government can't spend as much, but it does leave us
in a position now where the private sector and the
public sector both aren't spending as much as we might
(05:34):
all like on construction.
Speaker 1 (05:36):
Yeah, all right, I know we're just over a week out,
but where do you stand at the moment twenty five
or fifty basis points next week?
Speaker 2 (05:42):
I'm still sitting on twenty five, just because if you
look at what the Reserve Bank has said, and they've
said pretty clearly, we should listen to what they say.
They said, Look, here's the conditions for continued interest rate
declines of a normal pace, and we've had that data
come out pretty normally. In fact, you look at some
of the data, the likes of GDP and similar actually
a bit better than the Reserve Bank hope. So I
(06:03):
don't know if there's enough there for them to call
fifty I wouldn't put it out of my mind for
November though, all right, look forward to that.
Speaker 1 (06:09):
Thanks Brad, appreciate your time. Brad Olsen from Informetrics. There
in a couple of minutes on News Talks ed be
the man formerly known as Prince Harry is back in London,
so will he meet with his family? We'll take you
to the UK next score to seven for more from
Heather Duplessy Allen Drive. Listen live to News Talk S'B
from four pm weekdays, or follow the podcast on iHeartRadio
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