Brian Fallow

The Economics Editor of the NZ Herald

Earthquake rebuilding drives construction recovery

Plans for the Christchurch city rebuild. Photo / Supplied
Plans for the Christchurch city rebuild. Photo / Supplied

Led by Canterbury, signs of a long-awaited pick-up in construction activity are starting to appear in the economic data.

It is recovery from a low base, however. Construction activity, as measured for gross domestic product purposes, fell 27 per cent between its peak in late 2007 and its trough this time last year, which was its lowest level since the early 1990s.

Production of ready-mix concrete in the June quarter was up by 103,000 tonnes or 16 per cent from its post-recession low in the March quarter last year.

Three-quarters of the increase was in Canterbury, where it is now back above its pre-recession peak.

"We suspect the concrete production occurring in Christchurch is more going into infrastructure, such as for roads and piping, rather than literally laying the foundations for a big uplift in residential and commercial work for the moment," BNZ economist Craig Ebert said.

"However, it's a clear sign that something is picking up. And it's only a matter of time before the building of homes, offices and other business premises in the region takes up the baton."

Westpac economists estimate that, over the nine months to June 2012, over $500 million of earthquake-related repair and rebuilding work in Canterbury has taken place, and a further $400 million of commercial and non-building construction.

"It still means the overwhelming majority of quake-affected property owners are waiting for work to begin: $500 million of residential building is just 4 per cent of the total estimated residential repair and rebuilding activity that will eventually need to be undertaken," Westpac economist Anne Boniface said.

Fletcher EQR, which is in charge of managing Earthquake Commission repairs between $15,000 and $100,000, had already paid out $623 million to contractors, representing about 20 per cent of the total work it eventually expected to complete, she said.

Westpac estimates it will take seven years to carry out the residential rebuilding of Christchurch, which is about two-thirds of the total $20 billion (at current prices) rebuilding task. Commercial repairs and rebuilding will take 10 years or longer.

Meanwhile the number of residential building consents being issued is rising - steeply in Christchurch and more slowly in the rest of the country.

The pick-up in sales of existing homes suggests, if history is a guide, that the trend will continue.

"Consents issued for non-residential construction are not so encouraging, but they have at least stabilised on an annual basis," Ebert said.

"And there is definitely good news afoot for Auckland. It has experienced a clear lift in consents for offices, administrative buildings, shops and hospitality establishments over the last 12 months or so."

Ebert also points to a pick-up in employment in the construction sector over the past six months - albeit from a low base - in both the quarterly employment survey and the household labour force survey.

In addition to the massive task in Canterbury there would be a lot of work required to raise the seismic resilience of buildings throughout the country, he said.

"We found it particularly encouraging that architects responding to the latest [NZIER] quarterly survey of business opinion remained upbeat as regards their work over the next 12 to 24 months," Ebert said. "And as much about commercial and government work as residential."

- NZ Herald

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