High consent issuance not expected to continue

The number of new homes consented in July 2020 was 3,391, according to latest Stats NZ consents data.

It marked the third month in a row of relatively high numbers, after a fall in April during the alert level 4 lockdown. It also equated to over 10,000 new homes being consented in the last three months.

Stats NZ acting construction indicators manager Dave Adair says that’s the largest three-month rolling total since the 1970s.

“The high number of new homes consented was partly due to an increase in the number of townhouses, flats, and units. There may also be an element of catch-up after non-essential businesses closed in April.”

Adair says the high number of consents for new homes, as well as for additions and alterations to stand-alone houses, is a positive sign for the residential construction industry.

“But it will take time to see if consents are actually carried through to construction."

However, ASB senior economist Mike Smith points out that while consent numbers remain at historically high levels, the data shows consent issuance actually dipped by 4.5% in July.

That July pull back could be a sign of things to come, he says.

“We expect construction activity to remain elevated over the coming months as there is a sizeable pipeline of consented work still to be done. But it is difficult to discern where the construction sector might end up.”

That’s due to potential changes in demand, impact of record low mortgage interest rates, the backlog of work that needs to get through the system, supply side constraints and administrative processing delays.

Smith says that, hopefully, the situation will become clearer in the coming months, so they’ll be watching the key influences of net immigration, employment, and mortgage interest rates/credit availability.

“Beyond the short term we expect a subdued demand environment and cooling net immigration will soften construction demand and trigger the potential cancellation of some projects. 

“There could be potentially longer-lasting impacts on construction activity if New Zealand’s borders stay shut or the shift in work patterns observed during Covid-19 becomes more entrenched.”

Westpac senior economist Satish Ranchhod takes a slightly more positive view.

He says July’s decline was more modest than they had forecast and that it was largely due to a pullback in the retirement village segment.

“Consent issuance has held up across regions in the wake of the Covid-19 outbreak. There continues to be particular strength in Auckland with 14,900 new dwellings consented over the past year.”

The continued strength in consent issuance points to a solid pipeline of construction activity through the back half of 2020 and early 2021, Ranchhod says.

“Over the year ahead, the strength of home building activity will be challenged by the slowdown in population growth already in train. However, this is balanced against the low level of interest rates and some positive signs in the housing market.”