NZ: Building consents on the see-saw – ANZ

Philip Borkin, Senior Economist at ANZ, notes that the NZ’s number of residential dwelling consents bounced 6.6% m/m sa in April, a partial rebound from March’s 9.7% m/m fall as per the yesterday’s release.

Key Quotes

“Issuance has been particularly volatile of late, with April’s result continuing the “see-saw” pattern evident over recent months. In April, consents for “houses” surged 15% m/m, more than offsetting an 18% m/m fall in issuance for multi-dwelling consents.

But looking through this volatility, total issuance can best be described as flat. At 2,390, seasonally adjusted issuance is in line with its six month average. In fact, it is actually still below the recent monthly high recorded in July last year. Statistics NZ estimate that the underlying trend is now running at a -0.5% m/m pace. That said, trend issuance for houses has a 1.8% m/m run-rate at present, which is somewhat surprising given the push for intensification in the likes of Auckland.

One thing that is possibly capping an upward trend in issuance is increased signs capacity constraints. It is certainly a theme evident within our own internal anecdotes, and Q1 labour market data showed rising non-Canterbury construction sector wage inflation. On a three month average basis, the value of residential consents per square metre was up 8.0% y/y. While this is a little lower than in recent months, it is still strong.

But a clear positive in the data is that the value on non-residential consents rose a further 9% m/m (to above $500m), adding to the 12% gain in March. Compared to a year ago, issuance is stronger for retail, education and storage buildings, and looking at the pipeline, we expect the positive trend in non-residential issuance to continue.

We expect the construction sector will continue to underpin the domestic economy for a while yet. The pipeline of work is still large. However, escalating costs and capacity constraints are a significant risk and something we (and likely the RBNZ) are keeping a close eye on.”