New home consents plummet, rising costs and inflation cause big headaches

New home consents have slipped 25 per cent in a year, and Master Builders say rising costs and high interest rates are creating nightmares for the sector.

But despite some dismal statistics, a big bank said the downturn should at least be manageable.

Statistics NZ home consent data was released this morning, as was a Master Builders survey warning of tough times in construction.

In July 2023, there were 3,058 new homes consented, down a quarter on July last year.

”Fewer new homes were consented in each month of 2023 so far, compared with the same month of both 2022 and 2021,” Stats NZ construction and property statistics manager Michael Heslop said.

In July this year, 1,183 stand-alone houses were consented, down 32 per cent compared with July 2022.

And Stats NZ said 1,875 multi-unit homes were consented, down 21 per cent over the same period.

Rising costs and high interest rates are big problems for builders, according to the more than 1,000 who took part in Master Builders' State of the Sector survey. Photo / Jason Oxenham

Earlier today, a major builders’ survey warned of ongoing pressures from a volatile economy and high interest rates.

In the Registered Master Builders’ annual State of the Sector survey, rising costs were cited as the biggest problem for builders.

Escalating build costs and project delays were the two biggest concerns for professionals and homeowners who’d built or completed a major renovation in the last two years.

“Given the recent supply chain issues, product shortages and ongoing concerns with consenting, it’s no wonder those people building or renovating have had heightened concerns about blowing the budget and timeline,” Master Builders chief executive David Kelly said.

“The resilience of our firms has been tested for a long time, and they’re having to work hard to find demand,” Kelly added.

“Whilst it’s heartening to see a portion are keeping a steady workflow, they’re having to adapt to the current climate by reducing overheads, focusing on sales and marketing and looking to new markets such as renovation work.”

Master Builders said of the 1,000 sector participants surveyed, a whopping 88 per cent felt rising prices were the biggest problem.

The second-biggest bogeyman for builders related to problems getting finance.

“Finance and customer demand go hand-in-hand. With inflation and interest as high as they are, people are thinking twice about whether now is the right time to be building a home,” Kelly said.

“The consequence of this is that it acts as a bit of a handbrake for the residential construction sector.”

The Bridge Charitable Trust is building 42 homes in Peake Mews, Cambridge to help address affordable housing in the Waikato. But others trying to build affordable homes could face a lot of problems. Photo / Dean Taylor

That could have severe consequences for Kiwis already struggling to get on the property ladder.

“This is particularly a concern for those developments that include more affordable housing options.”

Red tape was the next biggest bugbear.

Central government regulation was a problem for 65 per cent of respondents. Council consenting was seen as a major problem by 50 per cent of respondents.

As for the Resource Management Act – “it simply hasn’t worked for a long time”, Kelly added.

There were some hopeful signs, despite the overbearing gloom of today’s two big building data releases.

52 per cent of builders said they had a steady or strong pipeline of work on the horizon - although Kelly indicated it would be great if even more builders had that kind of work lined up.

And woes with the supply chain had fallen away dramatically in the last 12 months.

Master Builders said a year ago, 95 per cent of builders had supply chain problems, but now that was only an issue for 34 per cent of respondents.

Bank: Don’t panic

Westpac economists said the fall in consents seen over the past year had actually been flattening off.

“In the year to July, 43,500 new dwellings were consented. That was down slightly from the level we saw last month,” Westpac said.

“Consent issuance is now running at levels that are around 15 per cent lower than those we saw last year.”

That could be attributed to the rise in interest rates and building costs over the past year, along with related falls in house prices.

“Those conditions saw many prospective buyers stepping back from the market, and also meant that many developers have been cautious about bringing new projects to market,” the bank economists added.

“The recent flattening of dwelling consents also reinforces this idea that the downturn now in train will be manageable.”