The annual National Construction Pipeline Report, out yesterday, is forecasting $200 billion of construction around the country over the next 6 years.
The report – the fourth commissioned by the Ministry of Business, Innovation & Employment, jointly prepared by BRANZ & Pacifecon (NZ) Ltd and released by Building & Housing Minister Nick Smith – attributes over half the construction growth to Auckland housing, but says the expansion is spreading to other regions.
The forecast is far higher than a tally of anticipated building consents, including other construction such as roads & infrastructure.
The gross fixed capital formation measure the researchers used includes a broader view of the costs of construction than the ‘contract value’ supplied with a consent application. It includes the final cost of the construction to the final user, and therefore includes costs before the application for consent, such as any feasibility studies & professional fees, and outlying costs, including subdivision works, costs of financing, legal & real estate fees and any developer’s profits.
Consents for all construction over the last 6 years to May 2016 totalled $77 billion, starting from the post-global financial crisis low point and heading into the present boom. But that figure & the forecast can’t be compared, given the much broader supply of information for the pipeline report.
4 major points the pipeline report makes:
- New Zealand continues to construct more by value than ever before, with current levels of recorded activity reaching $31 billion for 2015 and continuing to climb. Value increased by 4% in 2015, and is expected to grow another 20% to a peak of $37 billion towards the end of 2017. The annual value of all construction nationally is forecast to remain above current elevated levels until 2021. The forecast shows a longer & later peak than previously forecast
- Higher density housing increases its share of national residential construction over the forecast period; multi-unit dwelling consents represented more than one in every 4 (30%) consented dwellings in 2015 and is projected to account for more than one in every 3 (40%) by the end of the forecast period
- Auckland residential building value grew by $0.7 billion in 2015, accounting for 58% of the total national growth of $1.3 billion, and is projected to increase by another $3.3 billion by 2017, which represents 53% of the total national growth to the 2017 peak of $6.2 billion
- Residential value increased by 6% in 2015, and is expected to increase 22% more to a peak of $21 billion in 2017. Activity reduces slightly from 2017-21, but remains higher than 2015’s level of activity by value throughout the forecast period.
The report provides national & regional forecasts of activity in 3 categories – residential, non-residential & other. It also compare its results to the previous forecasts.
It notes: “Historically the building & construction industry has experienced boom/bust cycles which have contributed to resource clashes, low sector productivity, skills shortages & poor quality of construction. Being able to reliably forecast building & construction in this way is a powerful & transparent planning tool which offers more detail for the industry, the training sector & the workforce, to smooth some of the pressure points and contribute to our overall building productivity.”
The 2016 report says forecasts from the third report, last year, were a good prediction of what happened in 2015, but were slightly high for residential construction, high for non-residential building, and close to actual for other construction. It says there’s a slight delay in the previously forecast growth for the next 6 years, but it retains a similar shape with a smoother longer peak.
National construction value has experienced sustained growth averaging 7%/year since 2011, and is forecast to grow to a peak of $37 billion in 2017. This represents a rate of growth not seen in 40 years. These forecasts indicate a 2017 peak that represents 20% ($6.2 billion) more value than at the end of 2015. This peak is 28% higher than the previous peak in 2007, and 59% higher than the low of 2010.
The annual value of all construction nationally is forecast to remain above 2015 levels for the duration of the forecast period to 2021. Residential building growth in Auckland accounts for more than half of the total New Zealand construction growth.
The annual value of residential building is expected to increase by 22% to a peak in 2017 ($21 billion), and all non-residential construction forecast to grow by 20% to a peak in 2018 of $16.8 billion.
Actual data from 2015 shows the forecasts in previous reports have been reasonably accurate. Non-residential building actual data was, however, significantly lower than the 2015 report had expected. The 2016 report now expects this growth in non-residential building to be more gradual, with a later & longer peak ($8.8 billion) in 2018.
The national non-residential building forecast continues to grow, however it’s become a less distinct peak, spread out over a longer term. Contributing factors are deferred construction in some of the Canterbury anchor projects, a number of new university developments nationally, and the continued increase in Auckland non-residential building (such as schools & retail) as new suburbs are established and existing ones expanded.
Total value of activity in Auckland increased 9% in 2015; this increase in value is forecast to continue and peak in 2018 at $17 billion, and to remain above $16 billion for the remainder of the forecast period.
The report forecasts 94,200 new dwelling consents in Auckland between January 2014 & December 2021. Dwelling consents are forecast to stay at high levels/year throughout the forecast period.
The number of multi-unit dwellings consented each year in Auckland is forecast to continue to increase its share of all dwellings consented, and is expected to overtake detached dwellings by 2021.
All non-residential construction in Auckland grew 4% over 2014-15 and is expected to steadily increase by 49% to an elevated level of $7.3 billion in 2018.
Canterbury to stay at high level
Building & construction activity is at a high level in Canterbury as a result of the intensive rebuild activities underway, with total construction activity forecast to remain at high levels into the fourth quarter of 2016.
Residential activity reached its peak in the fourth quarter of 2014, but is still forecast to remain at elevated levels over the year before slowly declining. 13,800 dwellings consents were consented during 2014 & 2015, and another 14,000 detached houses & 6000 multi-unit dwellings are forecast to be consented in Canterbury in the 6 years ending December 2021.
All non-residential construction is forecast to experience continued growth, peaking in 2016-17 at $2.9 billion and remaining above $2.4 billion until 2019, before steadily reducing to around $1.7 billion in 2021.
The Waikato / Bay of Plenty region experienced an intense 24% growth in residential building value in 2015. Last year’s report expected total value of all building to peak in 2018 ($5.6 billion), but this revised forecast now shows the peak in 2017 ($6.1 billion).
Wellington is the only reported region with non-residential construction by value at a higher level compared to residential building, and this is expected to continue throughout the forecast period.
Wellington had the second highest ratio (43%) of multi-unit dwellings consented for 2015, with half of all consents forecast to be multi-unit towards the end of the forecast period.
National construction pipeline reports
Auckland new home construction historical & projected (pdf 37.22 KB)
Attribution: Pipeline report, MBIE, Pacifecon, ministerial release.