NZ Building Consents: A breather amidst a strong trend – ANZ

Sharon Zollner, Senior Economist at ANZ, suggests that not surprisingly, NZ building consents took a breather following their across-the board surge in June, but remain on a strengthening trend.

Key Quotes

“In July, multi-dwellings fell 19.3%, “houses” fell 5.7%, and non-residential consents were solid but much lower than a record June (all seasonally adjusted). Although the trend is gathering pace, headwinds are strengthening in the form of capacity and credit constraints. It would be too simplistic to assume “onwards and upwards” uninterrupted from here.

 Key Points

The number of residential dwelling consents fell 11% m/m in July (sa), holding onto half of their June surge. The volatility was primarily driven by multi-dwellings – they fell “just” 19% following a massive +76% lift in June. “Houses” fell 5.7% after rising 4.4% m/m the previous month, but the trend is lifting. In 3-month annualised terms, total issuance is running at its strongest rate since mid-2004.

The trend for new dwellings in Auckland is increasing following a recent tailing off. On a trend basis, issuance is rising particularly strongly in Wellington and Bay of Plenty.

Capacity constraints and associated cost increases may act to limit growth in the Auckland region, despite a clear shortage of dwellings. A tightened lending environment for both developers and house buyers is exacerbating the challenges.

Non-residential consents dipped in July following a record June. But at $614m ($535m seasonally adjusted), it remains a strong story.

The construction sector is at full stretch, with low interest rates, strong net migration, a policymaker-driven housing supply push, strong house price gains, solid business confidence and large infrastructure projects ensuring plenty of demand. However, headwinds are strengthening in the form of capacity and now credit constraints. Real demand from population growth looks set to win out, with consent issuance to continue trending higher, but that might not occur smoothly.”