Building consents still at record levels, but boom now peaking

Consents for new homes remain at historic highs, but the peak of the construction boom is fast approaching, if it’s not already here, an economist says.

There were 50,736 new homes consented in the year ended June, up 14% from the same time last year, Stats NZ’s latest figures show.

It was the fourth consecutive month in which the annual number of new homes consented surpassed 50,000, but the June figure was below last month’s record of 51,015 homes.

Multi-unit homes, which include townhouses, apartments, retirement village units, and flats, were driving consents, Stats NZ construction and property statistics manager Michael Heslop​ said.

“A decrease in stand-alone houses is being largely offset by high levels of consenting activity for multi-unit homes.”

There were 26,823 multi-unit homes consented in the year ended June, a 36% annual increase, but consents for stand-alone houses were down 3% to 23,913.

Auckland and Canterbury had the highest number of consents on an annual basis, but Canterbury was the only region to reach a new annual record, up 33% to 8628.

Westpac senior economist Satish Ranchhod said while the level of consents remained elevated, it was starting to ease back.

On a monthly basis, the number of dwelling consents fell 2.3% in June, and it was the third monthly decline in a row, he said.

“Over the past year, 50,500 new homes were consented. That points to a large pipeline of work over the coming year.

“With shortages of materials and labour resulting in widespread delays, planned work is taking longer to complete. Combined, those conditions don’t point to a sharp fall in building activity in the near term.”

But conditions in the construction sector had changed, and a peak in the construction cycle was fast approaching, if it was not already here, he said.

Falling house prices and hesitant buyers meant developers were increasingly nervous about bringing new projects to market, while skyrocketing build costs, labour and material shortages, and rising borrowing costs were putting a squeeze on profit margins.

Ranchhod said that, to date, there had only been a moderate cooling in the number of new projects being consented.

With financial conditions getting tighter, he expected consents to continue to trend down over the coming months, and a pullback from the current elevated levels of building activity over the coming year.

“But with a significant pipeline of projects already in train, this is likely to be an easing back, rather than a collapse.

“Even so, there are already a number of building firms, particularly in the SME space, that are already facing significant financial stress, and that’s likely to remain the case for some time yet.”

Infometrics economist Joel Glynn said monthly dwelling consents declined 6.5% in June, compared to June last year.

That was due to weak house, apartment and retirement unit consents which were down 26%, 30%, and 27% from June 2021 respectively. Townhouses were behind the high annual consent total, up 40% annually, he said.

“Purchasers are favouring more affordable, higher-density housing. This trend has driven strong townhouse consents growth over the last 4 and a half years, but is now also weakening demand for standalone houses.”

The comparative weakness in consent numbers was widespread, with monthly new consents down across 13 of 16 regions compared to the same time last year, he said.

“Residential building cost inflation of 18% per annum in June means that the construction of new dwellings is now significantly more expensive than it was this time last year, which is reflected in the declining consent totals.”

Source: https://www.stuff.co.nz/business/property/129442253/building-consents-still-at-record-levels-but-boom-now-peaking?cid=app-android