Government work to support building sector in election year

Finance Minister Grant Robertson. Photo / File

Finance Minister Grant Robertson's expanded infrastructure programme has raised architects' expectations for government work over the coming years at a time when both residential and non-residential work is elevated.

The New Zealand Institute of Economic Research's quarterly survey of business opinion showed a net 38 per cent of architects surveyed expect an increase in government work over the coming 12 months and 21 per cent over the next 24 months.

Architects were less optimistic on the housing outlook, with a net 6 per cent predicting an increase over the coming year, and a net 3 per cent expecting a decrease in housing work, and tended to be pessimistic on the commercial outlook, with no change expected in the next 12 months and a net 6 per cent anticipating a decline in the year beyond that.

"Architects' measure of activity in their own office points to a growing pipeline of residential and government construction over the coming year," NZIER said in the report.

"The announcement by the government of plans to increase infrastructure spending should support growth in this area of construction."

The survey was released just before Stats NZ's latest building consents data for November, which showed annual residential permits at their highest level since 1974 and the floor area of consented non-residential work at 26 per cent higher than the historic average.

The government data show annual residential consents were up 12.9 per cent at 37,010 in the 12 months ended Nov. 30 from a year earlier, while the value of those permits rose 13.1 per cent to $13.7 billion. The floor area was up a more modest 5.4 per cent at 5.88 million square metres, as new consents for apartments, townhouses, retirement units and flats grew at a faster pace than standalone houses.

The floor area for non-residential permits rose 1.5 per cent to 3.41 million square metres, the most for a November year since 2008. The value of that work was up 4.9 per cent at $7.4b.

Last month, Robertson flagged an increase to capital spending over the coming five years, especially in transport, health, education and greenhouse gas reductions.

The 2019 budget allocated $5b of capital spending for education. Consents for education buildings have been steady around the $1b mark since they stepped up in 2015. Some $1.03b of education buildings were consented in the November year, compared to $1.05b in 2018.

Hospitals, nursing homes and health building consents rose to $629 million in the 12 months through November from $453m the year earlier.

ASB Bank economist Mark Smith said residential building work would be supported through 2020 by population growth, low interest rates and a recovery in the housing market, while non-residential work would likely remain elevated across most industries.

"We expect solid population growth, low mortgage rates and the strengthening market for existing dwellings to support building demand over the year ahead, and will be closely monitoring building costs for signs of pricing and resourcing pressures," Smith said in a note.

"Commercial construction activity is expected to be boosted by similar tailwinds."

Smith said the consenting data indicated building costs rose at a 7.7 per cent annual pace, which could stifle future building activity.

The NZIER survey showed a net 27 per cent of building firms surveyed experienced higher average costs in the December quarter, and a net 27 per cent expected higher costs in the March quarter.

They remained pessimistic about their profitability, with a net 19 per cent experiencing a decline in average selling prices and a net 4 per cent predicting they'd be able to raise prices in the March quarter.

"Although profitability remains weak, firms expect an improvement in the next quarter as cost pressures moderate," the NZIER report said.