Residential building slides to six-year low

Monday 8th December 2008

New Zealand residential building work fell to a six-year low in the third quarter, adding to signs of a prolonged slump in the domestic economy.

Residential building fell 7.9% in the latest quarter while commercial construction gained 5.8%, according to Statistics New Zealand. Total construction work, adjusted for inflation, fell 2.1% from the second quarter.

The weakening home building figures underpin Reserve Bank Governor Alan Bollard's decision to cut the official cash rate by a record 150 basis points this month. While short-term mortgage rates are declining, the recession is likely to push more people out of work and sap demand fro property.

"As volume of work declines we expect increased layoffs" in the building sector, said Shamubeel Eaqub, economist at Goldman Sachs JBWere. "We estimate the sector
to be overstaffed by about 35,000 persons, which combined with further reductions in work done could result in significant job losses."

New Zealand's unemployment rate rose to a five-year high in the third quarter as the weakening economy trimmed demand for workers, according to government figures this month. The jobless rate rose to 4.2%, seasonally adjusted, from 3.9% in the second quarter.

When cutting the OCR last week, Bollard forecast the economy contracted 0.3% in the third quarter, extenmding the first recession since 1998.

Quotable Value today said New Zealand house prices fell 6.8% in November from a year earlier.

By Jonathan Underhill

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