Boom then gloom, say economists

The record number of building consents issued in July has surprised economists, who say such growth is unsustainable in a slowing economy.

Statistics NZ figures showed yesterday that the number of consents issued for house building and alterations was the biggest in 16 years.

The value of new house and apartment approvals last month was the highest since recording of figures started in 1990, and the value of all building work was the second highest.

The Canterbury region had the most growth followed by Otago and then Auckland.

The total value of consents issued for residential buildings was $612 million last month compared with $495 million a year earlier and $567 million in July 2004.

A big rise in the number of consents for new apartments accounted for much of the growth.

There were 257 apartment units authorised last month, compared with 81 in June and 217 in May.

The numbers startled UBS New Zealand economist Robin Clements.

"The dwelling consents were far stronger than we had envisaged, which was flat," he said.

He expected a decline soon.

BNZ chief economist Tony Alexander said years of rising house prices had made many people delay shifting house.

They were now taking the opportunity to upgrade, which was reflected in the new figures.

Strong migration could also be helping to push up activity.

Registered Master Builders Federation chief executive Pieter Burghout said the figures validated the underlying strength of the building and construction industries.

Statistics NZ found that the building boom was also helping to keep unemployment low.

Jobs growth was being pushed up by the construction, mining, electricity, gas and water supply industries.

The Statistic NZ figures also show an increase in consents for non-residential building. The biggest increase was in office and administration buildings; the biggest drop was in education buildings.

Clements predicted dwelling consents would soon return to a declining trend, hit by increasing costs that were denting business confidence and a large number of fixed-rate mortgages coming up for review in the next few months.

Alexander also predicts a gloomier future for the building industry.

"We will see extra corrections downwards, as consumer confidence remains weak, job growth slows and those on fixed-term interest rate mortgages roll over," he said.

"But the sector will have a soft landing and we're not looking at any sharp pull-back."

Shamubeel Eaqub, an economist at Goldman Sachs JBWere, said there was a semblance of stability to the residential consents figures, but signs of weakness in non-residential consents.

The monthly data was volatile and any month should not be compared with another because it could give a misleading picture.

"The July number of consents issued was at about the level of the past decade's average," he said. "The direction has been sideways in the past six months, rather than accelerating."

Consents figures come from territorial authorities and include consents for new buildings and alterations to existing buildings valued at more than $4999.