Residential construction has peaked, forecast to slide to decade low

Monday, 15 August 2022

Residential construction has peaked following a flurry of activity after Covid-19 lockdowns.

The residential construction market is in decline after its post-lockdown surge last year, and is expected to fall to a decade low by 2027, according to a new report.

Home building activity jumped 11% to $30.6 billion in 2021, ahead of the 5% growth forecast, due to a flurry of activity following the Covid-19 lockdowns in 2020, according to the National Construction Pipeline Report 2022 commissioned by the Ministry of Business, Innovation & Employment (MBIE).

The annual report, prepared by the Building Research Association (BRANZ) and construction research firm Pacifecon, sees the value of residential activity falling 5% to $29b this year, and continuing its slide until it reaches $19.6b in 2027, which is below the 2019 pre-pandemic level of $23.7b and would mark the lowest level since $17.8b in 2015.

Construction is experiencing a period of significant uncertainty in an environment of construction material price inflation, labour constraints, supply chain disruptions, credit constraints and building code changes, the report said.

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“2021 can be characterised as the year of recovery after the lockdowns of 2020,” the report said.

“Activity in the residential sector was strong, buoyed by high levels of consenting and work that was planned to be completed in 2020. However the impact of material and labour constraints can be seen across the regions as activity has plateaued throughout 2021.”

The latest forecast tallies with other assessments of the industry, including ANZ's latest business outlook which showed residential construction intentions had plummeted to a fresh low, down to a net -73.7% in July from -57.9% in June.

The bank’s chief economist, Sharon Zollner, said it was a “truly spectacular crash” in sentiment, and the outlook for house building had hit a brick wall.

The MBIE report forecast residential building consents would slip to 48,000 this year from 48,895 last year, and continue their decline to reach 32,010 by 2027. That’s below the pre-pandemic level of 37,626 in 2019 and would mark the lowest level since 31,081 in 2017, according to its earlier reports.

Last year’s report had underestimated the surge in consents, forecasting a 15% increase in 2021, lagging behind actual growth of 24%.

“The number of new residential consents has increased steadily across the whole country over the last 12 months,” the report noted.

All regions were forecast to track downwards over the forecast period, with the most notable decline seen in Auckland, where consents were expected to fall to 13,730 in 2027 from a peak of 20,529 in 2021, the report said.

Auckland dwelling consents grew 18% in 2018 and 2019, before slowing to 10% growth in 2020, and rebounding 23% in 2021, the report said.

Residential buildings are the largest contributor to national construction, accounting for 60% of total construction activity last year, the report said.