Auckland and Canterbury lead charge but recovery broadening across region.

Auckland and Christchurch's rapid house-building resurgence has surprised and delighted economists as it hit the highest level since 2002.

NZIER principal economist Shamubeel Eaqub said a strong recovery was coming through in the construction sector, in part a rebound from the pause at the end of 2013, mainly due to timing of some large government projects.

"The pace of new house building is picking up strongly, as well as a surge in alterations and additions, which covers quite a bit of the repairs in Canterbury," Eaqub said.

"Non-residential work picked up strong this quarter. The big drivers are the education, accommodation and commercial [sectors].


"Accommodation is mostly in Canterbury. Quite a bit of the work in both education and commercial sectors are likely to be driven by earthquake strengthening."

Regionally, good momentum was building up in Auckland and Canterbury but the recovery is also broadening across regions.
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"The evidence to date is of a solid recovery, which is gaining in momentum," Eaqub said.

"The forward-looking indicators are looking a little more worrisome. House sales, which lead consents by around six months, have slowed sharply in the last six months," he said.

"Our forecasts are more optimistic, boosted by political will with the Auckland housing accord, the rebuild in Canterbury, and some catch-up building following a long pause through the recession. Rising interest rates and slowing house sales are the key indicators to watch over coming months."

Christina Leung, ASB economist, said construction activity in this year's first quarter was much stronger than expected and an encouraging sign after last year's weakness. Higher business confidence was finally translating into stronger demand for commercial building and Auckland and Canterbury were leading the charge in house building, Leung said.

Statistics NZ said house building activity grew at its fastest pace in almost 12 years in the first quarter as construction ramped up to rebuild the country's second-biggest city and fill a housing shortage in Auckland.

Mark Smith, ANZ senior economist, said the 16 per cent lift in first-quarter building work was considerably stronger than expectations.


Michael Gordon, Westpac senior economist, said the increase in the March quarter was "well beyond what we would have reasonably expected".

Statistics New Zealand said residential building work grew a seasonally adjusted 15 per cent in the three months to March 31, the biggest quarterly increase since September 2002, accelerating from a 2.3 per cent rise in the December quarter. The value of residential building work grew 17 per cent to $2.36 billion in the period, its eighth quarterly gain.

The volume of non-residential work grew 17 per cent in the first three months of the year, from a fall of 2 per cent in the December quarter, and the value climbed 18 per cent to $1.4 billion.

The rise in building activity coincides with growing issuance of new consents with the country's two biggest cities, Auckland and Christchurch.

Local authorities issued residential building consents worth $2.29 billion and non-residential permits worth $1.19 billion in the March quarter.

Construction activity is seen as a major driver for economic growth in the coming year, and the Reserve Bank is closely watching whether inflation pressures are growing from the Canterbury and Auckland building programmes.


ASB expects governor Graeme Wheeler will lift the official cash rate 25 basis points next week to 3.25 per cent, before pausing until the December meeting. Traders are betting the bank will hike the key rate 81 basis points over the coming 12 months, according to the Overnight Index Swap curve.

Canterbury building work rose 25 per cent in the quarter, with residential activity up 31 per cent and non-residential up 16 per cent.

On an unadjusted basis, new residential work rose 29 per cent to $1.77 billion in the quarter, for an annual lift of 26 per cent to $6.4 billion. Non-residential building work grew 12 per cent to $1.3 billion from March 2013, up 4.2 per cent to $5.03 billion on an annual basis.

Building up

• 15% seasonally adjusted rise in residential building work in three months to March 31. The biggest quarterly increase since September 2002, accelerating from a 2.3% rise in December quarter.
• 17% rise in value of residential building work to $2.36b in the period.
• 18% rise in value of non-residential work to $1.4b.
Source: Statistics New Zealand.
- Additional reporting BusinessDesk