Construction activity down 4% in first quarter of year

Friday, 7 June 2024

Tough economic times have led to a significant decline in the total volume of building work put in place in the first three months of this year.

Stats NZ’s latest figures show $8.3 billion of building work was put in place in the March quarter, a 4% decline on the December.

It was driven by a seasonally adjusted fall of 4.8% (to $5.2b) in residential building work, and a 2.8% fall (to $3b) in non-residential building work.

Stats NZ construction and property statistics manager Michael Heslop said the total volume of building work was the lowest quarterly volume in the past two years.

“The fall in residential building activity reflects the decreasing number of building consents for new homes in the construction pipeline.”

New home consents climbed to a record annual high of 51,015 in the year to May 2022, and have been decreasing since then.

Infometrics economist Matthew Allman said the work put in place was down 5% compared to a year earlier, and it was the largest annual decline since the lockdown-affected September 2021 quarter.

The drop was driven by the fifth consecutive annual fall in residential activity, the first time such a sustained decline has occurred since June 2009, he said.

“With less new building work taking place, tradespeople are more readily available to address the backlog of alterations work, with volumes up 18% from a year earlier.”

Annual growth in non-residential activity was slowing, although activity was still higher than a year ago, he said.

“But the reduction in the value of non-residential consents during the second half of last year points to a coming slowdown in non-residential work put in place.”

Infometrics expected overall construction activity to weaken this year, but the Stats NZ figures suggested the pace of the downturn was progressing as expected, he said.

Westpac senior economist Satish Ranchhod said the downturn in construction activity was centred on the residential sector, with the level of residential building now down nearly 14% from the 2022 peak.

Tougher financial conditions, including higher build costs and sharp increases in financing costs, were weighing heavily on the construction sector, he said.

“The downturn in economic growth and mounting nervousness about the outlook means that buyers are hesitant to make purchases and developers are reluctant to bring new projects to market.

“Consistent with that, the number of residential consent numbers has fallen 25% over the past year. Similarly, businesses are becoming more cautious about their investment spending decisions.”

The challenging financial conditions were expected to weigh on building activity over the year ahead, but the slowdown followed on from sharp increases in previous years, he said.

“For now, the level of building activity remains elevated,and many firms are still working through existing pipelines of projects. While we’re expecting a further downturn in building activity, it’s likely to be a gradual slowdown.”

The Stats NZ figures also showed there was a 2.8% decrease in the retail sales volume of hardware and building supplies in the March quarter.

Kennards Hire New Zealand general manager Tom Kimber said many construction businesses, especially smaller ones, did not have the ability or confidence to invest and purchase long-term assets right now.

“As a critical player in the construction supply chain, the hire and rental sector is also feeling the effects of the recession, with overall hire activity slowing down across the board.”

But hiring equipment remained a cost-effective alternative for businesses in the current environment, and the industry had started to see initial signs of early recovery, he said.

“We are cautiously optimistic that conditions won’t further erode. But the government and Reserve Bank will need to create some stimulus in the economy before a full recovery will be felt.”