Tuesday 30th August 2011
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Dwelling consents: +13% mom seasonally adjusted, -18% yoy
Ex-apartment consents: +6.3% mom seasonally adjusted, -17% yoy
Non-residential consents: -1% annual average growth
Residential building consents lifted a robust 13% over July, on the back of both an increased number of apartment consents and recovery in core consent issuance. Excluding the volatile apartment component, consents increased 6.3% over the month - rebounding from the previous month's 4.3% decline. While the level of consents issued remains extremely low, the pick-up in July is an encouraging sign. Over 2011, strong house sales data and anecdotes of tight supply in the rental market suggest demand for new housing construction is starting to increase. We expect to see a continued increase in underlying housing construction activity over the coming year.
Most of the recovery in dwelling consents was outside of Canterbury, with consent issuance in Canterbury remaining relatively low. This is not surprising, as it is too soon to see any meaningful pick-up in earthquake rebuilding. Decisions on land remediation have only just been made in some areas, and many households still have to go through the process of finalising details of insurance claims. However, we do expect to see reconstruction activity in Christchurch start to pick up in early 2012 (assuming seismic activity continues to settle down). We should expect to see consents in Christchurch start to increase toward the final months of this year.
There was a surge in the value of non-residential issuance in July, largely reflecting public sector projects. In particular, Stats NZ notes the substantial contribution from the $105 million consent for work on Middlemore Hospital. In contrast, consent issuance for retail outlets and office buildings remains fairly subdued, suggesting a degree of caution remains amongst businesses in regards to investment on buildings. Overall, the results point to a soft outlook for private non-residential construction over the coming year.
Business surveys show an improvement in commercial construction intentions in recent months. Part of this is likely to reflect the substantial amount of post-earthquake rebuilding required, and we expect a recovery in construction activity will occur over 2012 as rebuilding activity picks up pace.
In July, there were $26 million non-residential consents and $6 million residential building consents identified as being earthquake related. Most of the residential building consents issued have been for relocatable units intended to house displaced residents.
The construction outlook over 2012 is likely to be dominated by the earthquake reconstruction activity. However, it is too soon to see any meaningful increase in earthquake reconstruction related consents. In the meantime, construction activity has been extremely weak due to subdued housing demand and weak investment intentions. Today's consent issuance showed early tentative signs of improved demand for new housing construction. Over 2012 we also expect to see a pick up in underlying demand for housing construction outside of Canterbury, along with the earthquake reconstruction activity.
Today's data has no fresh implications for the RBNZ. Recent domestic data has been strong, and will see the RBNZ increasingly confident about NZ's underlying economic recovery. However, this is currently overshadowed by global financial market volatility and growing downside risks to the global growth outlook. Current uncertainties will likely see the RBNZ leave the OCR unchanged at the upcoming September OCR decision.
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