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    Weak total NZ building activity to persist out to 2008/09

    BIS Shrapnel

    BIS Shrapnel  expects overall building activity in New Zealand to remain subdued during 2007/08 and 2008/09, before a moderate rebound in activity between 2009/10 and 2012/13 driven by a recovery in dwelling commencements and the commercial property market.

    The New Zealand building sector has been mostly subdued so far this financial year, according to BIS Shrapnel’s Building and Construction in New Zealand, 2007/08 to 2013 report.

    BIS Shrapnel senior project manager, Adeline Wong, estimates total building consents have reached just over NZ$8 billion due to lacklustre residential, commercial and industrial building activity.

    Adeline Wong forecasts residential building consents will decline by 7% in 2008/09 (in value terms), which will offset solid 9% growth from the non-residential building sector.

    “In 2008/09, we expect the decline in the number of dwelling consents to gather pace due to a continued slide in the apartment segment and as consumers finally feel the lagged impact of recent multiple interest rate hikes,” said Adeline Wong.

    “Home affordability will continue to be the dampening factor in the housing market during the coming year. We also expect weaker demand for new houses will be compounded by lower net migration gains. Given these factors, we expect growth in the median house price in 2007/08 will slow considerably, although a tight labour market and solid wages growth will provide some support to the housing market.”

    BIS Shrapnel expects the recovery in the residential building sector to start modestly in 2009/10 and continue out to 2012/13.

    Adeline Wong believes the next building upturn will be driven by a build-up of a large stock deficiency, specifically in Auckland, a pick-up in net migration inflows and an improvement in home affordability (due to an easing of the composite mortgage rate and some impact from the KiwiSaver first home deposit subsidy).

    Over the five years to 2012/13, average annual net overseas migration gains are forecast to reach 10,500 persons, which Adeline Wong says is reasonably strong. This will contribute to average annual underlying demand for new dwellings of around 25,500 between 2007/08 and 2012/13, according to BIS Shrapnel.

    Non-residential building authorisations over the course of 2008/09 will be supported by sports stadium projects associated with the 2011 Rugby World Cup and higher public expenditure in the education and health sectors, as well as reasonably solid levels of office, retail and hotel building, according to BIS Shrapnel.

    The forecaster anticipates building authorisations in the non-residential sector will fall back gradually during the following years, but average annual activity between 2007/08 and 2012/13 will remain relatively high at around NZ$3 billion.

    Adeline Wong expects strong economic fundamentals will underpin business confidence in the medium-term and support further building authorisations in this sector.

    New supply coming on-stream across the commercial property market, the office market in particular, between 2008/09 and 2009/10 will ease pressure on rental and vacancy rates. But BIS Shrapnel believes strong economic growth between 2009/10 and 2012/13 will generate new demand for commercial and industrial space.

    During the next five years, the health and education building sectors will benefit from higher public spending from the 2008 pre-election pledges.

    Furthermore, Adeline Wong believes strong underlying demand driven by net overseas migration gains and intra-net migration will require the development of health centres, hospitals and schools, particularly in new regional areas. A growing budget surplus will ensure there will not be any cut-back or delay in implementing these projects.

    Growth in engineering construction activity during the next five years will continue to be underpinned by the construction of several major road and highway projects such ALPURT B2, Newmarket Viaduct, Waterview Connection and Manukau Harbour Crossing.

    BIS Shrapnel forecasts average annual real gross fixed capital formation over the five years to 2012/13 will be more than 25% higher than the preceding five-year period.

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