Govt predicts boom year for house builders

The building and construction outlook, a quarterly report from the Department of Building and Housing, says the recession is over for house builders. Photo / Glenn Jeffrey

Builders will put up 18,000 to 20,000 new houses this year, according to a forecast.

The building and construction outlook, a quarterly report from the Department of Building and Housing, says the recession is over for house builders.

The slump has bottomed out and housing consents have been rising so the sector will see much higher levels of activity this year.

Evidence is also beginning to emerge that construction prices are rising although generally costs are suppressed, the report said.

"Homebuilding costs are no longer rising at above the rate of inflation," the update said.

"The sharp drop in demand has meant there is still spare capacity in the industry, even with the exit of some smaller players, and the tender process is more competitive than it has been for several years as builders chase a smaller amount of work.

"Subcontractors are certainly backing up this claim of an increasingly competitive environment, reporting tough trading conditions and intense margin pressure.

"From the March quarter 2009, it is apparent that input prices for residential buildings have been levelling out following strong increases from early 2005 to late 2007.

"However, recently there have been reports of higher timber prices pushing up construction costs again.

"If we also see higher demand in 2010 and a subsequent tightness in the labour market, the static period for housing costs may be short-lived."

Shamubeel Eaqub, NZIER principal economist, criticised forecasts saying more houses were needed.

"There is no chronic undersupply of housing. If there was, rents would rise sharply. In the year to December, average rents fell by 0.5 per cent or -2.5 per cent in real terms," he said.

Latest data from Statistics New Zealand showed the number of households increased by 13,300 last year, similar to the number of house consents over the corresponding period.

People claiming New Zealand had a severe housing shortage usually relied on declining numbers of people in houses.

But Eaqub said household size had increased in the past year "as usually happens in recessions".

Mark Graham of the Homeowner's Building Guide said house prices were rising because too few were being built.