NZ building consents: Positive, amidst volatility – ANZ

Phil Borkin, Senior Economist at ANZ, suggests that while NZ’s dwelling consent issuance fell again in August, ANZ still view this as a positive outcome.

Key Quotes

“With issuance to date only retracing around half of June’s surge, a clear positive trend (across most of the country) remains. And while we are mindful of capacity pressures (and also an altered funding backdrop for developers), it is a positive trend that we believe has further to run yet. Low interest rates, house price gains, net migration, a clear push from policy makers, solid business confidence and infrastructure demands should ensure the construction sector continues to be a key contributor to overall GDP growth for a while yet.

Key Points

The number of dwelling consents dipped 1.0% in August (which is the second consecutive fall). However, the level of issuance is still well above where it was over the first half of the year. After rising 20% m/m in June, issuance has only retraced about half of that fall over the subsequent two months. In three month annualised terms, total issuance is running at close to 33K – the strongest since mid-2004.

In terms of the composition, issuance for ‘houses’ rose 4.4% m/m, while multi-dwelling consents (which is far more volatile) fell 12% m/m.

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 the South Island (ex-Canterbury).

The value of non-residential consents is also trending higher. While down from the results in June and July, non-residential consents were still valued at over $500m in August, with Statistics NZ indicating the underlying trend is running at a 1.3% m/m pace.

We are mindful that capacity constraints and associated cost increases will limit the sector’s ability to grow strongly from here. That said, we do note that one proxy of cost inflation from today’s data (the value of consents per square metre) has been a little more contained recently. In August it was up just 5.6% on year ago (3-month average), which is down from its recent high.”