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Key Themes – September 2011
The domestic economic recovery now slowly getting underway is starting to benefit the building sector. Residential building has been the worst affected part of the industry, with the number of new dwelling consents lodged in the year ended July 2011 the lowest for any 12 consecutive months on record, despite consent numbers now trending up since February. Record low interest rates have encouraged households to borrow more and perhaps even buy more homes, but this has yet to translate into many new builds. Cautious spending, low migration, and increased household size also reduced demand.
The non-residential market has fared only slightly better. A decline in public investment, primarily due to the completion of Rugby World Cup building projects and reduced office building, has reduced demand and the private market appears unready to make up for it at this time.
However, the strong New Zealand dollar has helped limit rising building costs even as international commodity prices remain elevated. Anticipated rises in interest rates will help keep the New Zealand dollar strong and dampen inflation, but they could also hinder recovery in the building sector.
Difficult as things are at the moment, there is genuine reason for medium-term optimism. The combination of the Canterbury rebuild and the launch of the leaky homes Financial Assistance Package (FAP) represents an unprecedented level of pending building work. Building sector recoveries generally start in the residential sector before spreading to the non-residential sector, and the FAP and Canterbury earthquake recovery work mean this recovery will not be any different. For now, most builders will need to continue focusing on keeping their internal capability as high as can be managed in preparation for the work that is on the horizon.
