Fall in consents, cranes signal ‘more pain to come’

Thursday, 30 May 2024

Tough times for the residential construction sector will continue, with new figures showing further declines in new home consents and crane numbers.

But the consents trend over recent months suggests that the fall could be nearing a floor, one economist says.

Stats NZ’s latest figures show there were 35,401 new homes consented nationwide over the year to April, a 23% decline on the year ending April 2023.

Within that, there was a higher number of consents issued for multi-unit homes (20,004), which includes townhouses, apartments, retirement village units and flats, than for standalone homes (15,397).

But multi-unit home consents were down 25%, while standalone house consents were down 20%, compared with the previous year.

The number of new home consents were down in all regions annually, but Wellington had the biggest fall at 30%.

New home consents have been declining since they hit a record high of 51,015 in the year to May 2022 during the building boom.

Westpac senior economist Satish Ranchhod said the ongoing fall in consent issuance was due to tougher conditions in the building sector.

There had been large increases in build costs and financing costs over the past few years, and weakness in the housing market was weighing on the prices for newly built homes, he said.

“For now, building activity has been easing back gradually, as many operators are working through the pipeline of projects that accumulated in recent years. However, as that work is completed, we do expect a sizeable fall construction activity.

The latest consent figures were signalling a downturn in construction activity over the year ahead, but the good news was the decline in consent numbers looked like it was finding a base, he said.

“Consents for standalone houses, which are around 40% of the total, have held around current levels for more than six months now. We’re also seeing tentative signs that the downturn in the multi-unit space is flattening off.”

Despite that, a material pickup was still a long way off, with developers likely to remain cautious about bringing projects to market until interest rates fell and the housing market recovered, he said.

There was more evidence of the residential construction downturn in the latest Rider Levett Bucknall crane index, which showed there were 139 cranes across the seven main centres in the first quarter of this year.

But just 30 of those cranes were for residential development, down from 76 cranes 18 months ago, and it meant the proportion of residential cranes nationwide was the lowest since the first quarter of 2015.

Along with the fall of 11.9% in consent value in 2023, the data pointed to a significant reduction in the construction pipeline, the global construction consultancy said.

For Ray White head of research Vanessa Rader, the completion of various projects and a limited pipeline of new supply, as indicated by the fall in consents, was a likely indicator of activity for the year ahead.

Sentiment surrounding interest rates had dampened business confidence and the ongoing lack of labour was a key constraint for the construction sector, she said.

In a presentation on Thursday, CoreLogic head of research Nick Goodall said there was no doubt it was a tough new build environment, and the pipeline could still keep falling away for a couple of years.

New home consents could go as low as 30,000 a year, but then they would start to increase again, he said.

“It’s worth noting that while, yes, consents are well down on the peak numbers seen in 2022, they are nowhere near the lows of around 13,500 seen post-global financial crisis in 2010 to 2011.

“But in the short-term, there will be more pain to come through for the residential construction sector.”