Building consents continue to defy gravity

That’s an increase of 7% on the previous year.

A total of $33 billion of residential and non-residential building work has been consented in the September year, despite the property market downturn which started kicking in from February.

Statistics NZ data shows 4,600 new homes were consented last month, the highest number since March and up 1.7% compared to September last year.

Although stand-alone houses are still the favourite dwelling type and more than 22,697 were consented in the September year, their numbers are down 10.9% compared to a year ago, while the number of townhouses and units are rising.

There were 20,779 townhouses and units consented in the year in the September year, up 27.2% compared to the previous 12 months. Apartments are also on the rise with 4,372 consented, up 4.3% in the September year.

The result oss stronger than Westpac expected. Senior economist Satish Ranchhod says he expected overall consents to pull back after the large number of retirement village units consented in recent months. They accounted for 2,884 dwellings, up 9.8% on the previous year.  Consents in this segment if the market have held firm.

Looking into the underlying details of this month’s result, Ranchhod says there is a continuing strong pipeline of new projects coming to the market, mainly related to the large number of medium density developments that are being consented.

The number of apartment and townhouses being consented is more than offsetting the decline in consents for stand-alone homes.

Auckland remains particularly strong for consents with 21,985 new dwellings consented to the September year, up 10.6% from the previous year, even though population density and housing affordability remain ongoing challenges, says Ranchhod.

“Prior to the pandemic, home building in Auckland failed to keep pace with the region’s rapid population growth. However, over the past few years the region’s population has gone backwards at the same time as home building has boomed. That’s eliminated most of the underbuilding of homes that we saw last decade. Even so, the region still has far fewer homes per-head of population than in other parts of the country. “

Auckland isn’t the only region where consent issuance has been running hot. There is also strength in Canterbury where consent numbers are up 18%, Wellington 10%, Gisborne 14%, Nelson 30% and Otago 10%. In all these cases, it’s medium density developments that are driving the strength in consent numbers, says Ranchhod. 

He says the headwinds the construction sector is facing are approaching gale strength. Interest rates are pushing higher, house prices continue to fall (especially in larger centres and building costs are continuing to climb. “Against this backdrop, we’re continuing to hear reports about buyers becoming increasingly hesitant about making purchases, while developers are cautious about bringing new projects to market, but those factors don’t appear to be holding back the number of new projects being consented.

At the same time, stretched capacity in the building sector means that building activity has fallen well behind consent issuance, and completion times have stretched out (especially in Auckland).

Ranchhod expects tougher financial conditions will see consents go down. However, with such a large number of projects already in the pipeline, he expects the slowdown in actual construction will be gradual.