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Home / Business / Companies / Construction

Building dip eases inflation worries

Anne Gibson
By Anne Gibson
Property Editor·
12 Jan, 2007 04:00 PM4 mins to read

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KEY POINTS:

A fall in the number of new houses being built late last year has taken some economists by surprise, prompting suggestions that the sector is softening.

Statistics New Zealand yesterday released monthly building consent data for November which showed a 3 per cent fall in the number of
consents but a 6 per cent rise in the value.

Robin Clements, of UBS New Zealand, said the drop was likely to have been a surprise to many.

"The fact that the November plunge came on the back of a larger than previously published fall in October adds weight to the veracity of the decline in dwelling consents," he said.

But Shamubeel Eaqub, director of investment research at Goldman Sachs JBWere, said the decline would not disappoint everyone.

"The Reserve Bank will likely be pleased by the dropoff in residential consents, but given volatility in the monthly survey, a firm trend needs to be established. Also, housing data will bear close watching; the latest data has shown a rising trend in house sales," he said.

Darren Gibbs at Deutsche Bank calculated that the number of all consents for housing and non-residential work was $1.05 billion, down 4.7 per cent on a year ago. Apartment consents were down 52 per cent between October and November, he said.

The non-residential sector remained stable, he said. There were anecdotal reports from the sector of a number of significant projects in the pipeline.

House building costs were rising, Gibbs said. "We estimate that the average price per square metre in the residential sector stood at $1215 in the three months to November, a 9.3 per cent year-on-year rise compared with a year earlier."

Dominick Stephens at Westpac said the weakness of the consents data called into question the strength of the third wind in the housing market and confirmed that home-building remained in a gradual downward trend.

"However, monthly data can be very volatile, so we will wait until December before drawing strong conclusions. But this data will give the Reserve Bank some comfort that inflationary pressures in the construction sector are abating. The bank will not need to raise its official cash rate in January, preferring instead to wait for more data on the housing market."

Pieter Burghout, chief executive of the Registered Master Builders Federation, was optimistic about the numbers.

"Residential consent numbers are somewhat down for the year, but the dollar value of consents was slightly up compared to November 2005.

"Although this is the second decrease in a row following a 3.6 per cent fall in October, we find that this time of the year tends to be quieter for most builders in terms of residential building consents, as they are completing homes they are currently building before Christmas, Burghout said.

"Given the time-lag between building consents and work actually being undertaken, early projections at the start of this year will be that it is another busy period for the building and construction industry.

"We expect this year will not vary much from last year. We assume that residential consents might perhaps go down to 24,000 new dwelling consents from the 26,000 consents achievedlast year after a peak of 32,000 in2004.

"As for the commercial sector, we anticipate this to remain relatively steady for the next few months given the projected work volumes and building projects in the pipeline," Burghout said.

Noting that voluntary builder licensing started in November, he said some builders might have been scared away had the industry been lessbuoyant.

"As it stands, we can expect a steady uptake of builder licensing given the strong position of the construction industry - a very useful outcome for the industry as a whole."


How many dwellings?

* 2004: 32,000 houses built.
* 2005: 26,00 houses built.
* 2006: 26,000 houses built.
* 2007 forecast: 24,000 houses.

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