Building approvals fall to 22-year low

The number of permits issued fell 7.9% to 1,284, seasonally adjusted, in August, extending a 1.7% slide in July, Statistics New Zealand (SNZ) said. The number of approvals tumbled 43.3% from a year earlier.

Excluding apartments, consents fell 8.9%.

Non-residential consents were valued at $362 million, down $36 million from August last year.

For the year ended August, the value of consents issued for residential buildings was $6.83 billion, 13% lower than the year ended August last year.

ASB economist Jane Turner believes “slowing net migration and high interest rates, combined with falling house prices have reduced incentives to build”.

The value of non-residential construction was up 6% to $4.38 billion for the year.

The trend for the total value of residential building consents was down 33% in the same period.

“The weaker result implies we can expect even more decline in residential construction, which has already contracted 15% since quarter three of 2007,” Turner said.

The value of consents issued for all buildings in August was $819 million, down 30% from a year earlier, while for the year the total value was down 6.6% to $11.2 billion.

New Zealand’s economy may have contracted 0.5% in the third quarter, according to a Bank of New Zealand, extending the first recession since 1998. Some economists are anticipating the central bank will cut the official cash rate 50 basis points next month to 7% and make at least two further reductions to help revive the economy.

“As the economy reflects the reality of the housing bust and contagion from global financial markets, expectations of a quick recovery are likely to be dashed and add to the urgency to ease interest rates,” said Shamubeel Eaqub, economist at Goldman Sachs JBWere.

Eaqub expects a 32% contraction in residential building in the year ending June 30, 2009. Job losses in the construction industry may reach 60,000, he has forecast.