Building Consents - February 2002

Data Flash (New Zealand)

Result: The number of dwelling consents issued rose 12.7% mom in February to be 25.4% higher than a year earlier. A surge in intended apartment construction explains the latest rise.

Implication for markets: None. The RBNZ has built a substantial rise in residential investment into its latest economic projections. Data confirms that housing market is buoyant.

Commentary

By all accounts the demand for housing is continuing to strengthen at a rate that is outstripping the supply of existing homes coming onto the market, with the Auckland market especially buoyant. It is not surprising, therefore, that the resulting excess demand for housing is spilling over gradually into new construction activity as well as higher prices for existing dwellings (and increased rentals).

The sharp rise in dwelling consents recorded in February was driven by an increase in consents related to apartment complexes, rather than single unit dwellings. While the former is inherently volatile, we think it reasonable that this type of development will perform well in trend terms given the composition of the migrant inflow (apartments will be attractive to students and young professionals). In any case, as the chart below shows, whether or not apartments are excluded or included, dwelling consents are displaying a clear upward (but not explosive) trend.

As the year progresses, we expect projected interest rate increases and a decline in net migration inflows to gradually undermine growth in housing market activity. We think that the housing market activity will peak around the third quarter of this year.

In its latest Monetary Policy Statement, the RBNZ forecast annual average growth in residential building investment of 19% in Q1 2003. In our view, further substantial growth in dwelling consents will be required if that forecast is to be realised.

Key points

The total number of new dwelling consents issued increased 12.7% mom in February and, in doing so, topped the 2000 mark for the first time since December 1999. The number of dwelling consents issued in February was 25.4% higher than a year earlier and 13.1% higher than the average level since 1990.

The latest rise was driven by an increase in consents for apartments. Excluding apartments, the number of dwelling consents issued decreased 0.8% mom in February following a 6.4% rise in January, and was 10.4% higher than a year earlier.

The strongest growth continues to be recorded in the Auckland region, in large part probably reflecting migration inflows. The number of dwelling consents issued in Auckland in February was 39% higher than a year earlier. Growth in the remainder of New Zealand was 16.1%.

Non-residential building consents with a value of $174m were issued in February. The three-month running total was 3.4% higher than a year earlier. In broad terms, non-residential construction activity appears to have reached a plateau following a strong rise during H1 2001. Darren Gibbs, Senior Economist

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