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Residential Construction to Face Looming Slowdown as New Home Consents Plummet
In a worrying development for the Kiwi construction industry, the expected slowdown in residential construction is seeming to be gaining momentum rapidly, which leaves many industry experts concerned about the future of the housing market across the nation.
The latest figures released by Statistics NZ reveal a staggering drop in the number of newly consented homes. In the month of March alone, only 3,970 new dwellings were approved—a sharp decline of 25.1% compared to the same period last year.
This decline of over one quarter marks the fifth consecutive month where the number of newly consented homes has fallen below the figures from the corresponding month in the previous year. The downward trend in consented homes becomes even more apparent when considering the 12-month period leading up to March 2023, during which only 46,924 new dwellings received consent. This represents a significant decrease of 7.9% compared to the preceding 12 months.
However, despite the decline in approvals, the total monetary value of building work consented for new dwellings remained stable at $19.65 billion for the year ending in March – in other words nearly 8% fewer houses are being consented for the same amount of money. This can be attributed to high inflation within the building industry – a familiar story for New Zealanders everywhere.
Interestingly, the slowdown in residential construction is not limited to specific regions and most areas across the country are experiencing it to some extent.
Among the major population centres, Auckland saw a 5.4% decline in annual new dwelling consents, while Waikato experienced a more significant drop of 13.9%. Bay of Plenty witnessed a substantial decrease of 24.3%, Wellington recorded a 6.0% decline, Canterbury observed a 4.5% decrease, and Otago encountered a significant slump of 12.8%. Taranaki suffered the most significant annual decline of 29.7% The decline in building activity is not solely confined to residential construction but also appears to impact commercial and non-residential construction sectors.
It must be said that there were some zones where the rate increased – though there were only three in total, Tasman with +18.8%, Marlborough with +35.2%, and the West Coast with +6.5%.
The non-residential construction industry, encompassing a diverse range of buildings such as factories, shops, offices, schools, and hospitals, is also experiencing a slowdown. The total floor area of non-residential buildings consented in March witnessed a substantial decrease of 24.7% compared to the previous year. Over the 12-month period ending in March, there was a notable decline of 12.4% compared to the preceding year.
As the consistent reduction in newly consented dwellings persists and the raw numbers decline, companies which are currently operating in the residential construction and supply market are going to feel the effects more strongly now that existing projects approach completion and there are much fewer homes in the pipeline.
It looks like the construction boom which has been a cornerstone of the economy in recent years, is now coming to an end. This is justly raising concerns about the potential impact on the housing market and the overall economy, but with changes few and far between on the horizon it may be harder to find a solution than governments are prepared for.