It's getting cheaper to build a new house

Photo / Glenn Jeffrey

New Zealanders are spending less money on new houses, pushing the value of residential building work down 6.5 per cent in the June quarter to its lowest level in nearly eight years.

But the good news is that the cost of building a new house is also falling.

Statistics NZ data shows the value of house-building work is lower than the value of non-residential building work for the first time since it began gathering figures in 1989.

ASB economist Jane Turner said residential construction activity had fallen 36 per cent from its peak in September 2007, "and is now likely to be close to its trough".

"The volume of construction activity declined for the sixth consecutive quarter, falling 4.5 per cent and down 24 per cent since December 2007.

"The weakness was led by a 6.5 per cent decline in residential construction activity, although the drop was not quite as weak as expected given the extent of decline in consent issuance."

She is expecting some stabilisation in construction activity for the rest of this year.

The 6.5 per cent fall in residential building work was the seventh consecutive quarterly fall. Non-residential building work fell 2.5 per cent, the figures showed.

However, house building also appeared to have become cheaper.

Statistics NZ said construction prices fell 0.3 per cent in the June quarter, the third consecutive fall. This appeared to be a new trend.

"These quarterly falls were the first since the December 1998 quarter. The latest fall was driven by lower labour rates, and contractors' margins in the construction of apartment buildings," Statistics NZ said.

For the June year, the value of residential building work put in place was $6.3 billion, down 24 per cent from the year to June 2008.

This includes new houses and additions and alterations.

"Construction will be a large drag on gross domestic product again," said Philip Borkin, economist at ANZ National Bank in Wellington.

"There is potential for there to still be some weakness in residential construction over the remainder of this year."

The report is one of the final indicators ahead of the September 23 release of second-quarter gross domestic product figures.

The Treasury Department yesterday said it expects the economy to have shrunk in the second quarter. The economy probably contracted 0.6 per cent in the quarter, Borkin said.