Building consent downturn finds its ‘floor’

Monday, 13 January 2025

There were 33,609 new home consents nationwide over the year to November, Stats NZ says.

New home consents are still falling, but the trend is slowing and that is good news for the construction industry, economists say.

There were 33,609 new homes consented nationwide over the year to November, according to Stats NZ’s latest figures.

It was a decline of 12% on the 38,209 consents issued in the year to November 2023, and significantly down from the record high of 51,015 in the year to May 2022.

But Stats NZ economic indicators spokesperson Michael Heslop said while the number of consents fluctuated each month, the trend had remained relatively steady for the last year.

“The annual number of homes consented has been sitting around the 33,600 mark for the last six months.”

Westpac’s Satish Ranchhod says interest rate cuts will support a gradual recovery in the housing market.

Within the annual total, 15,823 stand-alone houses were consented nationwide, a 0.8% annual fall, while consents for multi-unit homes, which includes townhouses, apartments, retirement village units and flats, were down 22% to 17,786.

Westpac senior economist Satish Ranchhod said there had been a stark slowdown in new home construction over the past few years, but it looked like the downturn had found a floor.

New home consents rose 4.8% in November, reversing a fall in October, and interest rates had fallen sharply in recent months with the Reserve Bank likely to deliver further cuts in early this year, he said.

“Over time, we expect those cuts will support a gradual recovery in the housing market and house prices.

“And that combination of lower borrowing costs and a strengthening in the housing market will eventually be supportive of new housing development.”

It would take time for the full impact of lower borrowing costs to be felt, he said.

“We don’t expect to see consent issuance turning materially higher until mid-2025, with a lift in construction activity to follow that.”

Consent numbers are down from the post-Covid boom, but they are above the long-run average, construction expert Mike Blackburn says.

Canterbury-based construction expert Mike Blackburn said the monthly increase was good, but the rolling 12-month average provided a broader picture and that showed consent numbers were still going down.

The trend of declining numbers was slowing, and a combination of lower inflation and interest rates should see an improvement in the new housing demand this year, he said.

“There’s a lot of doom and gloom in the industry, so it is worth banging the drum about this, and the fact that if you look back to 2020, the long run average was about 27,000 consents annually.

“So even though we have come off the unusual high seen in 2021 to 2022, where we are now is still reasonably above the long run average.”

It is also far above the low of 13,500 that economist Tony Alexander has said consents fell to during the global financial crisis.

But Blackburn said that digging deeper and looking at individual regions showed a different picture.

That was because consent numbers in some regions were significantly weaker than others. In Wellington consents were down 33.0% over the year to November, for example.

Seascape was meant to be finished by now with its penthouses occupied by wealthy owners. But instead construction has stopped and the matter's before the courts.

In Auckland, which accounts for 41.3% of the country’s residential construction, consents were down 12% annually, while Canterbury consents were holding up best, with a decline of 9.2%, he said.

“It will be a slow start to the year for the industry, but the flattening trend should be an encouraging sign for the industry.”

BCI Central’s recently released 2024 Construction Outlook Report revealed that high inflation, interest rates and construction costs had dampened industry confidence.

Construction businesses were bracing to “survive 2025”, and high building costs, ongoing construction insolvencies and labour market shortages could hinder an industry recovery before 2026, it said.

But annual construction cost growth has slowed over the last year, according to CoreLogic’s latest Cordell Construction Cost Index.

Construction costs were up just 1.1% in 2024, down from a rise of 2.4% the previous year, and well below 2022’s increase of 10.4%.