Building Consents - April 2002

Data Flash (New Zealand)

Commentary

The number of dwelling consents rose sharply in April following a decline in March. As the chart above illustrates, the key driver of recent volatility in total consents issued has been apartment consents. Consents for single unit dwellings have followed a smoother and more gradual upward trend. The relative strength of the apartment market likely reflects the composition of the current migrant inflow (weighted towards young students).

Given the usual lagged relationship between existing house sales and new construction, we think that dwelling consents have a little further to rise over coming months (though a downward correction seems likely to occur in May, driven by a decline in apartment consents from the high April level).

We expect that building consents will peak by the end of Q3. We estimate that the number of house sales rose 1.1% mom (s.a.) in April. This was easily the weakest growth rate recorded over the past six months (cumulative growth of 39% was recorded over the period). We think that activity in the existing housing market is close to peaking, assisted by actual and perspective rises in interest rates, an expected gradual easing in the net migrant inflow, and natural cyclical factors.

Today's data does not alter our view that the RBNZ will hike the OCR by a further 25bps at both of the next two meetings (3 July and 14 August), taking the OCR to a broadly neutral 6%. If the trade-weighted NZD continues to outperform the RBNZ's forecast assumption, all other things equal, we would expect the RBNZ to leave the OCR unchanged at the subsequent meeting on 2 October.

Key points

The total number of new dwelling consents issued increased 9.9% mom in April following a 4.7% decline in March. The number of dwelling consents issued was 29.6% higher than a year earlier and 18.8% 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 0.9% mom in April following a 5.9% rise in March, and was 19.1% higher than a year earlier. Non-residential building consents with a value of $199m were issued in April. The three-month running total was 13.7% lower than a year earlier.

Non-residential construction activity over the past three months is running at lower levels than has been typical over the past year.

The total value of all building consents issued ($607m) was close to our expectations, with a slightly stronger than expected rise in the number of consents issued offset by a slightly lower than expected average value.

Darren Gibbs, Senior Economist

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