Archive | Forecasts

Construction pipeline report continues to show high optimism bias

The annual national construction pipeline report acknowledges an optimism bias in forecasting, then doesn’t seem to take it into account.

In an election year, in particular, optimism about funding is a critical factor for all construction, but the Reserve Bank has had some success in dampening housing expectations and Australia’s Big 4 banks have been clawing money back to meet regulatory expectations of bank funding strength.

International expectations are anybody’s guess, depending largely on the reactions & impulses of one man, US President Donald Trump.

And a highly important factor in New Zealand construction – the level of immigration – depends on who wins the election. A government led by Labour is likely to see cuts, and a lift in Australia’s mining sector will result in a migration swing back to that country.

Those economic factors don’t filter through to the pipeline report, resulting in an even greater optimism bias this year than in the 4 previous reports.

The report, commissioned by the Ministry of Business, Innovation & Employment, is based on building & construction forecasting by BRANZ, and Pacifecon NZ Ltd data on known non-residential building & infrastructure intentions. It has a 6-year horizon.

Despite the absence of critical factors, the report does contain findings. These are its main 6:

  1. The national forecast shows a higher peak with a longer duration than previously forecast
  2. Dwelling unit consents are forecast to reach a new peak for the next 5 years (34,500)
  3. Growth in non-residential buildings is forecast to continue for longer and to a higher level than previously forecast
  4. Growth in building & construction in Auckland is expected to be sustained for a longer time than in other regions
  5. Dwelling consents in the rest of New Zealand grew 27% in 2016, and
  6. House sizes have plateaued & decreased in some regions in the last decade.

Earlier story:
27 July 2016: $200 billion construction pipeline forecast for next 6 years

Attribution: Pipeline report & release.

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$200 billion construction pipeline forecast for next 6 years

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.”

Report findings

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.

constr 4casts160726aknzThe 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.

Other regions

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.

peak 4cast160726

Links:
National construction pipeline reports
Auckland new home construction historical & projected (pdf 37.22 KB)

Attribution: Pipeline report, MBIE, Pacifecon, ministerial release.

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Intensification forecast to take bigger housing share despite greenfield expansion

Forecasting in the third National construction pipeline report is for a steady growth of multi-unit housing’s share of the residential market in Auckland over the next 5 years, even though developers have won approval for a high proportion of new housing to be in greenfield special housing areas.

The statistics are hard to work with – Statistics NZ has started producing monthly building consent figures in 3 more intensive categories (apartments, retirement village units and suburban townhouses or flats) nationally. Though a high proportion of them are in Auckland, and Auckland’s share of the more intensive categories is likely to remain high, the pipeline report focused on a forecast for standalone housing in the region.

2 factors will determine whether intensive housing continues to grow its share of the market – migration and the unitary plan for the region.

Less restrictive rules on intensive housing are a likely outcome of mediation under the guidance of the unitary plan hearing panel, but the migration picture is complex. High numbers of Chinese & Indians have been migrating to New Zealand, while NZ citizen departures have slowed and the number of citizens returning from Australia has jumped. Changes in economic conditions in Australia & China could bring sharp reversals in migrant numbers and in the money dedicated to housing.

Statistics NZ’s monthly report on building consents showed 8300 housing consents (of all types) in the Auckland region in the June year, and 7200 consents nationally (but probably mostly in Auckland) for more intensive housing.

The pipeline report is jointly prepared by Pacifecon & BRANZ for the Ministry of Business, Innovation & Employment to give the building & construction industry a forward view and assist planning, project co-ordination & resourcing.

It covers residential & non-residential projects planned by the Government, local government & the private sector for the 6 years ending December 2020.

Ministry building systems control manager Chris Kane said: “This third report validates our previous ones. Actual data from 2014 shows our forecasts are reasonably accurate. That’s important because the national construction pipeline gives the building & construction sector reliable information to base decisions on, with confidence.”

Auckland was the fastest growing region by population from 2006-13, increasing 8.5% to 1.4 million in the 2013 census. The report’s authors said: “Residential building demand in Auckland has played a significant role in reversing the national slowdown in residential construction that occurred after the global financial crisis in 2007-08. The value of residential construction in Auckland is predicted to grow by 126% from 2013 ($4.2 billion) to a peak in 2018 ($9.6b billion).”

The forecast shows 94,400 new dwelling consents in Auckland between January 2013-December 2020, up from the 2014 forecast of 70,800 from 2012-19.

Over 53,500 detached homes are forecast to be consented in Auckland from 2013-20, peaking at over 8200 in 2017. The number of multi-unit dwellings consented each year is forecast to grow rapidly between 2013-18 before the rate of growth slows. The number of detached & multi-unit dwellings is forecast to be almost the same by 2020, although it is likely there will still be more houses (6800) than multi-unit dwellings consented (6200).

Among the forecasts:

  • The annual value of all building & construction nationally is projected to increase by 19% from 2013-20 (residential building by 22% and non-residential building by 17%)
  • The forecast spend on all construction for the 3 years to the end of 2017 is $106 billion
  • The value of all building & construction is forecast to grow to over $36 billion by 2016, $7.5 billion higher than the last peak in 2007. The value of all building & construction has grown between 9-12% over each of the last 3 years.

The revised forecast for all building & construction activity from 2015-20 has a smoother, longer peak.

Local government is initiating nearly 40% (22% by value) of other construction projects (horizontal construction, including infrastructure & roading).

I’ve added a link to my 2008 story about the use I made of housing statistics to give an idea – wrongly, Statistics NZ told me – of costs/m². It’s a warning – a technical note added to the monthly tables as a result of my 2008 discussion – which I suspect Statistics NZ itself now, and possibly the authors of this pipeline report may also have ignored: “For staged consents, values are recorded at each stage but floor areas & unit counts are normally recorded at the first large stage.”

Link: 2015 pipeline report

Earlier stories:
11 December 2013: Caveats ignored as construction forecast report raises boomtime speculation
1 February 2008: Statistics, lies & don’t knows

Attribution: Pipeline report.

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Caveats ignored as construction forecast report raises boomtime speculation

A construction forecast released yesterday opened up talk of a boom around the nation, but especially in Auckland housebuilding.

There are 2 things wrong with the boom assumption. One is the frequent caveats in the report, particularly that private sector developers don’t reveal their intentions unless they have to, don’t reveal them far in advance and can change their minds at the drop of a hat.

The other is the assumption that all projections will occur. The report doesn’t get into the detail of financing or tenancy, though it does mention them. Without finance, tenants or buyers, projections can fall flat.

The forecast increase in overall construction compared to the previous peak in 2007.

The forecast increase in overall construction compared to the previous peak in 2007.

The report concedes an important point about the forecast for Auckland housing growth but omits to mention one that is probably more important: It says the 2013 census figures show Auckland had the fastest-rising population from 2006-13 at 8.5% to 1.4 million and says there was a significant slowdown in residential construction after the global financial crisis began. Therefore, it’s been widely assumed, there was a growing shortfall of homes.

What the report omits is that Auckland population growth declined to 15,800/year during that 7-year census period from 29,000/year over the previous 5 years. The shortfall assumption has to change, but does not appear to have been taken into account.

The Building & Construction Productivity Partnership, a joint industry & Government body established in 2010 to address barriers to productivity in the construction sector, commissioned the National Construction Pipeline Report from Pacifecon (NZ) Ltd, in conjunction with BRANZ. It brings together economic forecasts and data from the public & private sectors on their forward construction workload.

One example the report gives of why its boom forecast might be wrong, or mistimed: A $100 million-plus project first detected in 2009 has now had its start date deferred from the December 2013 quarter until 2017.

Pacvifecon has noted: “Private sector projects are also the most uncertain as they tend to have shorter planning horizons, and start dates may be deferred due to factors such as securing tenancy agreements &/or accessing finance.

The residential growth picture for Auckland is even stronger than that for overall growth compared to other regions.

The residential growth picture for Auckland is even stronger than that for overall growth compared to other regions.

“Much of the immediate peak in known non-residential construction will be private sector projects. These have less certainty that they will proceed as planned.”

The forecasts for Auckland residential work are spectacular – from a low point of $2.9 billion in the March 2012 year to $7 billion in 2016, $7.2 billion in 2018 – a 145% rise over 6 years. The non-residential forecast, however, is far from spectacular – from a base of $4.1 billion in 2012 to $4.2 billion in 2016, $4.6 billion in 2018 – a 13% rise.

The report forecasts the nature & timing of construction work by type & region over the 6 years to March 2019 and highlights 5 findings:

  • An unprecedented level of construction activity is forecast to peak in 2016 at $32 billion, up 23% from the 2007 peak of $26 billion
  • The forecast shows high rates of growth over a longer period than at any time in the last 40 years, , comparable to the mid-1990s boom: “The challenge for the sector will be how to sustain 4 or more years of 10%+ growth.”
  • Auckland construction is expected to grow by 68% over the forecast period, dominating national demand, even taking into account the Canterbury rebuild
  • Auckland’s residential building is forecast to grow by 150% between now & 2017, from $2.9 billion to $7.3 billion
  • The non-residential construction forecasts are supported by known construction intentions. (As mentioned above, private sector and particularly residential construction intentions are harder to pin down).

The report’s national construction pipeline fact sheet (a term which can easily be disputed as it’s about forecasts & projections):

  • predicts unprecedented growth in construction to the beginning of 2019
  • forecasts at least a 10% increase in construction activity every year for the next 4 years
  • says growth is expected to peak in 2016
  • says the estimated total value of construction activity is expected to be nearly $32 billion in 2016

The report says the primary drivers are an increase in housebuilding in Auckland the Canterbury rebuild, plus more demand in the Waikato, Bay of Plenty & Wellington:

  • Highest demand by value is in the Auckland region, driven by housing needs more than doubling, and the Government’s intention to accelerate residential building there. Residential building in Auckland is forecast to increase by 145% between 2012-16
  • There is a noticeable increase in construction of higher density housing, especially in Auckland
  • The Canterbury rebuild is another key driver of demand – between 2012-16 the value of non-residential work is forecast to more than double in Canterbury.

Council says it’s gearing up to meet higher demand

Auckland Council’s new chief operating officer, Dean Kimpton, who has just moved from the building sector consultancy Aecom (NZ) Ltd, said yesterday the significance of the report’s findings for Auckland were clear: “The report identifies Auckland as one of New Zealand’s ‘construction hot spots’, with around a third of building work predicted to take place here. Much of this is driven by the forecast that Auckland’s residential housing demand will more than double. This is consistent with the projected population growth of Auckland over the next 30 years.

“We are already building capacity in our building & resource consent units and working more efficiently, such as by introducing fast-track processing so straightforward consents are dealt with in 10 days. We will use the findings to ensure our regulatory teams are structured to meet demand and that we are investing in graduate employment schemes & cadetships to continue to deliver a timely regulatory application process.”

He said the newly established Housing Project Office was one example of Auckland Council’s co-ordinated response to meet demand for regulatory building approvals. It brings together representatives from the council’s building & resource consent, planning, stormwater, libraries & parks units, Auckland Transport & Watercare, along with the Ministry of Business, Innovation & Employment, to provide a co-ordinated response to deliver high quality housing & neighbourhoods.

Mr Kimpton said the council was also contributing to the research needed to understand market demand and was working closely with MBIE & the Productivity Partnership to streamline procurement processes.

He chairs the Auckland Procurement Forum, a group working across both public & private sectors to better understand the forward pipeline of infrastructure work and how procurement processes can be improved.

Links: National construction pipeline report pdf
Pacifecon, construction pipeline report
Productivity Partnership

Attribution: Report, council release.

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BIS Shrapnel sees NZ $10 billion/year consents level through to 2015

Australian industry analyst & economic forecaster BIS Shrapnel expects New Zealand building consents over the next 5 years to be worth more than the historically high level reached during the 2004-08 boom period, led by the Christchurch rebuild.

The annual rate of both residential & non-residential consents went over $10 billion/year in October and BIS Shrapnel expects consents to continue at that level through 2014-15.

BIS Shrapnel senior project manager Adeline Wong said in the company’s Building & Construction in NZ 2013-18 report, out today, that the level of activity would gradually taper off over the rest of the decade, but construction activity would remain relatively high.

Other contributors to greater activity would be a relatively strong dwelling sector upturn in Auckland and remediation work on leaky homes & schools in the North Island that could possibly add $3-5 billion to total building value over the 5-year outlook period.

“The demolition of around 8000 residential red-zone houses will boost dwelling consents in the Canterbury region over the next 2-3 years.  We expect quake-related dwelling consents to peak between 2014 & 2015, before it starts to taper off. The dwelling sector in Canterbury over the next 2-3 years will be further boosted by the repair work on the 30,000 damaged homes that would require a repair bill of more than $100,000 each.”

Despite the rebuild, Ms Wong has forecast dwelling consents in Canterbury over the outlook period to be about 15% lower than the 4280/year average over the 2004-08 boom period: “This is due to weaker underlying demand for housing in the Canterbury region, resulting from a lower population growth rate in the aftermath of the earthquakes, which will slow down new household formations.

“After it had languished at more than 2-decade lows in recent years, we expect the Auckland housing sector’s growth to continue through the forecast period. Existing pent-up demand and an expectation of a return to net overseas migration gains are expected to underwrite Auckland’s sustained & possibly protracted housing upturn over the outlook period.

“A sizeable housing stock deficiency of 9300 units has built up over the years, and we expect this deficiency to rise and remain at over 10,000 units over the next 2 years before it starts to decline to around 3200 dwellings by 2018. However, we do not expect the city’s dwelling building activity to match the historically high levels in the early 2000s, as the high median house price there will act to constraint activity in the first-homebuyer market.

“Auckland’s high house prices are likely to drive first-homebuyers to settle for cheaper apartment prices in high-density living in the inner city, as has been the trend in Sydney in the past few years. The high-density housing sector may thus present an upside over the forecast period – which is in line with Auckland’s unitary plan that calls for up to 70% of new dwellings to be built within the current city boundary.”

BIS Shrapnel expects the New Zealand housing market to be underpinned over the next 5 years by reasonably strong net overseas migration of more than 10,000 people/year: “Dwelling activity over the outlook period will also be boosted by strong activity in alterations & additions to dwellings and this will drive total dwelling authorisation value to record highs – resulting in an annual average of $5.73 billion in constant terms.”

On the commercial side of construction, Ms Wong said: “While Christchurch reconstruction will provide a major boost to the non-residential building sector over the next 5 years, BIS Shrapnel also expects a pick-up in new building & refurbishment in the warehouse, factory & office sectors in the North Island as leasing activity gathers pace in response to domestic & global economic growth in the next 2-3 years. Annual average commercial & industrial building authorizations, at an estimated $2.3 billion in constant terms, is up 35% on the level over the preceding 5-year period.

“The non-residential building sector over the next 5 years may get an extra lift from potentially wider earthquake strengthening work in office buildings & schools in Wellington in particular.

“However, there is also a downside risk to our forecasts in that the timing & scale of Christchurch reconstruction, and also seismic work in Wellington, may not be as expected. Some owners of quake-damaged & earthquake-risk properties may not commit to redevelopment.”

Attribution: Company release, story written by Bob Dey for the Bob Dey Property Report.

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BIS Shrapnel picks 20% NZ contraction to March, 5-year under-build in Auckland

Published 10 February 2009

Australian property industry analyst & forecaster BIS Shrapnel Pty Ltd expects the New Zealand building sector to have contracted by 20% by the end of the March 2009 financial year, to rebound slightly in the next year – but with some silver linings amid the adversity.

 BIS Shrapnel’s Building & construction in New Zealand 2008/09-14 report forecasts building activity to remain weak in 2009 due to a setback in investment, which has adversely affected the real side of the economy.

 

“Building activity will be constrained by delays in, or cancellation of, business investment & expansion plans. The housing market will also remain subdued, due primarily to job insecurity, rising unemployment & tighter bank lending policies.

The report’s author, BIS Shrapnel senior project manager Adeline Wong, said yesterday: “The sharp downturn is largely attributed to a record low number of dwelling approvals, which are expected to contract by over 30% to just above 17,000 units for 2008-09.  “We expect weak dwelling approvals to persist for the whole of 2009, before a modest rebound in the March quarter of 2010. Thereafter, a combination of strengthening economic growth, low interest rates, improving home affordability, pent-up housing demand, higher net overseas migration levels and an expanding housing stock deficiency will drive a strong rebound in dwelling consents in 2010-11 & 2011-12, before stabilising over the following 2 years to 2013-14.” Ms Wong believes the Auckland region will suffer a substantial housing stock deficiency over the next 5 years as a result of under-building.  Dwelling approvals for the Auckland region peaked in 2003 at 12,500 units and have been falling ever since, with record lows of below 4000 units expected to be reached in 2008-09. “Auckland has the lowest home affordability due to high median house prices, so significant pent-up demand for houses is also expected to have built up in the region over the past few years.  “The dwelling sector will be instrumental in driving the next building sector upturn expected from 2010-11. The reliance on the dwelling sector is because of weak non-residential building activity, due to a drop-off in social & cultural building activity and subdued activity in retail, office, storage & factory building. “The drop-off in these sectors is due to falling demand and lack of project finance which, combined, will cause projects to be delayed, deferred or shelved.”   However, BIS Shrapnel can see an upshot in all the doom & gloom: “The silver lining is that, in the short term, the commercial sector will hold up for at least another year as commercial projects that are more advanced in their construction stages will be completed.” Ms Wong said the civil engineering sector would also provide a buffer to the construction sector. Increased spending on infrastructure of $5.8 billion over the next 5 years would see the civil engineering sector expand by over 10%/year over the next 2 years.  “This extra spending will enable the completion of projects under construction and also fast-track new projects. The civil engineering sector will also be underpinned by the energy sector & projects such as Meridian’s $1 billion development of 5 wind farms, and Contact Energy’s Waitahora wind farm.”

 

Want to comment? Email bobdey@propbd.co.nz.

 

Attribution: BIS Shrapnel release, story written by Bob Dey for the Bob Dey Property Report.

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BIS Shrapnel forecasts subdued 18 months then housing & office recovery for NZ

Published 13 February 2008

Property industry analyst & forecaster BIS Shrapnel Pty Ltd expects overall building activity in New Zealand to remain subdued over the next 18 months, before a moderate rebound between 2009-10 & 2012-13 driven by recoveries in housing starts & the commercial property market.

 

Senior project manager Adeline Wong forecast in BIS Shrapnel’s 6-monthly study of New Zealand construction that residential building consents would decline by 7% by value in 2008-09, offsetting solid 9% growth from the non-residential sector.

 “In 2008-09, we expect the decline in the number of dwelling consents to gather pace due to a continued slide in the apartment segment and as consumers finally feel the lagged impact of recent multiple interest rate hikes. “Home affordability will continue to be the dampening factor in the housing market during the coming year. We also expect weaker demand for new houses will be compounded by lower net migration gains. Given these factors, we expect growth in the median house price in 2007-08 will slow considerably, although a tight labour market & solid wages growth will provide some support to the housing market.”

 BIS Shrapnel expects the residential recovery to start modestly in 2009-10 and continue out to 2012-13. Ms Wong believed the next building upturn would be driven by a build-up of a large stock deficiency, specifically in Auckland, a pick-up in net migration inflows and an improvement in home affordability (due to an easing of the composite mortgage rate & some impact from the KiwiSaver first-home-deposit subsidy). BIS Shrapnel forecast that average annual net overseas migration gains would reach 10,500 people over the 5 years to 2012-13, which Ms Wong said was reasonably strong. She said this would contribute to average annual underlying demand for new dwellings of around 25,500 between 2007-08 & 2012-13. She said non-residential consents over the course of 2008-09 would be supported by sports stadium projects associated with the 2011 rugby world cup and higher public expenditure in the education & health sectors, as well as reasonably solid levels of office, retail & hotel building. Ms Wong anticipated that non-residential consents would fall back gradually during the following years, but average annual activity between 2007-08 & 2012-13 will remain relatively high at around $3 billion. Ms Wong said she expected strong economic fundamentals would underpin business confidence in the medium-term and support further building consents in this sector. “New supply coming onstream across the commercial property market – the office market in particular – between 2008-09 & 2009-10 will ease pressure on rental & vacancy rates. But BIS Shrapnel believes strong economic growth between 2009-10 & 2012-13 will generate new demand for commercial & industrial space.”

 

During the next 5 years, the health & education building sectors would benefit from higher public spending from the 2008 pre-election pledges. Ms Wong believed strong underlying demand – driven by net overseas migration gains & domestic migration – would require the development of health centres, hospitals & schools, particularly in new regional areas. “A growing budget surplus will ensure there will not be any cutback or delay in implementing these projects.” Ms Wong said growth in engineering construction activity during the next 5 years would continue to be underpinned by the construction of several major road & highway projects such Alpurt B2, Newmarket Viaduct, Waterview Connection & Manukau Harbour Crossing.

 

BIS Shrapnel forecasts average annual real gross fixed capital formation over the 5 years to 2012-13 will be more than 25% higher than the preceding 5-year period.

 

Want to comment? Click on The new BD Central Forum or email bobdey@propbd.co.nz.

 

Attribution: Company release, story written by Bob Dey for this website.

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BIS Shrapnel forecasts 2 years of consent declines then a rebound

Published 14 February 2007


Melbourne-based independent industry analyst & forecaster BIS Shrapnel said today it expected total building consents in New Zealand to decline by 3% in 2006-07 and another 2% in 2007-08.


But it expects a 4% rebound in 2008-09 projects associated with the 2011 rugby world cup get underway and the residential building sector shows a slight improvement.”This decline in total building activity will be brought about by a 6% softening in the non-residential building sector during 2007-08, while residential building will remain close to steady,” senior project manager Adeline Wong said.The estimates are made in BIS Shrapnel’s 6-monthly report, Building & construction in New Zealand.“Non-residential activity will rise another 10% in 2008-09 as projects related to the rugby world cup ramp up, buoying a sector that would otherwise be flat,” Ms Wong said.She anticipates high construction costs & challenging home affordability will continue to hold the residential building sector back over the next few years. These restraints will be particularly evident in regional pockets in the North Island & Canterbury, where property price growth remains solid.”Sports stadium projects related to the rugby world cup and an increase in public spending on health, education & other institutional buildings in the lead-up to the general election in 2008 will lead to a shortage of skilled labour in the building sector. The consequence of this will be higher construction costs and constrained building materials supply, impacting activity in the residential building sector as a whole.”Ms Wong said the residential building sector was more sensitive to higher construction costs, as these costs are passed on to home buyers. “Higher costs combined with higher home mortgage rates and increases in median house prices (albeit at a slower pace) will continue to keep the home affordability level low.”BIS Shrapnel forecasts some easing in floating interest rates during 2007-08, though it expects effective mortgage rates will rise marginally during 2007-08 & 2008-09. “A significant portion of homeowners who are currently on fixed-term mortgages will have to renegotiate mortgages at higher fixed interest rates going into 2007-08 & 2008-09,” Ms Wong said.The report concludes that high effective interest rates & weak economic growth over the forecast period will erode consumer confidence and restrain a dwelling building sector rebound: “Despite the economic outlook, dwelling consents over the next 3 years are forecast to remain at a high level, by historical standards, at above 25,000 homes, as net overseas migration stabilises at around 10,000 persons/year,”BIS Shrapnel forecasts the annual value of commercial & industrial building authorisations will weaken over the 3 years to 2009-10 as activity falls back from a 15-year high reached in 2005. “The downturn in commercial & industrial building authorisations is not expected to be severe, as reasonably high authorisation levels in the retail, office, storage, factory & hotel sectors will sustain this sector out to 2010.”Total social & institutional building authorisations in 2007-08 are forecast to remain closer to an underlying demand level of around $850 million, sustained by higher Government spending in health & educational buildings ahead of the election in 2008, and sports stadium projects.


“Public spending is less sensitive to higher construction costs. Furthermore, a growing Government budget surplus will ensure there will not be any cutback or delay in implementing public development projects.”The report says growth in engineering construction (real gross fixed capital formation or GFCF) activity over the 3 years to 2009-10 should be backed by an unprecedented level of activity for state highways. Ms Wong forecasts real engineering construction GFCF to expand 10% to $3.9 billion in 2007-08, followed by further increases of 8% to 2009, 5% to 2010.


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Attribution: BIS Shrapnel release, story written by Bob Dey for this website.

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Rider Hunt’s NZIER survey picks non-residential slowdown to mid-2007, costs to pick up in mid-2008

Published 30 July 2006


Investment in non-residential buildings is forecast to decline from the March 2006 quarter until the first half of 2007, and costs should start to rise again from mid-2008, Rider Hunt managing director Brian Dackers says in the quantity survey & cost management consultancy’s latest report on construction trends.



The report was compiled by NZIER (the NZ Institute of Economic Research).


Looking back, it said: “The surge in investment over the past 5 years has been driven by strong growth in real gdp and firm sales, labour shortages & capacity constraints, low prices for imported capital equipment and rapid implementation of information & com­munications technology.”


Looking forward it forecast: “The sector now faces slowing revenue growth as economic growth weakens, pressures on profitability as costs rise faster than selling prices, higher prices for capital equipment due to the lower dollar & higher domestic construction costs, and higher borrowing costs. Consents remain close to their historical high, however, indicating much work still in the pipeline.”


Key points in the report:

Total non-residential building work put in place dropped slightly in the March 2006 quarter, but reached a new record annual high of $5.2 billion in the March 2006 year
Building consents remained stable at $4.1 billion in the May 2006 year, close to the historical high, signalling continuing high levels of non-residential building work to be put in place over the next 6-9 months
Consents growth was strongest in the miscellaneous buildings and hospitals & nursing homes sectors. The factories & industrial buildings, offices & administration buildings and social, cultural & religious buildings sectors saw falls in consents.

NZIER said economic growth slowed from 3.7% in the March 2005 year to an estimated 2.1% in the March 2006 year and was forecast to decline to 0.8% in the March 2007 year, before an export-led recovery to 2% in the March 2008 year, fuelled by depreciation of the $NZ, followed by 3.3% growth in 2009 & 3.5% in 2010.


Consents data suggested continuing high levels of building work put in place and demand for construction resources in the remainder of 2006 and into 2007. “Non-residential building cost escalation is expected to remain high for most of 2006, but to ease slightly in 2007 before rising again from mid-2008. At an average of 5%/year to 2010, this is well below the peak of 10% reached in the year to December 2004. For comparison, annual cost escalation has averaged 6% over the past 3 years (2003-06), but only 0.8% over the previous 7 years (1997-2003).”


Website: Rider Hunt


 


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Attribution: Rider Hunt survey, story written by Bob Dey for this website.

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Rider Hunt forecasts more escalation for next 9 months

Published 30 October 2005


Cost escalation in the non-residential building sector is predicted to remain high for at least the next 9 months, Rider Hunt says in its latest quarterly Forecast report.



“Non-residential building costs remain high and are still escalating, but show signs of decelerating. The rate of increase in the capital goods price index for non-residential buildings is up, but well below its record high increase of last year.”


The index rose 1.2% in the June quarter, up from 0.2% in the March quarter but well below the record high of 4.1% in the June 2004 quarter.


Construction components & raw materials were the main drivers for the latest increase. But the annual rate of non-residential cost escalation, as measured by this index, was down from 7.8% in the March year to 4.8% in the June year, compared to the 10-year average of 2.3%.


Rider Hunt and NZIER (the NZ Institute of Economic Research) have been investigating an alternative measure to overcome some of the limitations of the existing index, which will provide a regional measure of building costs as well as the national median, plus comparison with major Australian cities.


The existing capital goods index is a national average which doesn’t differentiate between regions or building types. “We therefore advise caution in applying the CGPI-NRB as a measure of cost escalation for specific building projects,” Rider Hunt said.


Other key points in its report:

The slight easing in pressure in the non-residential building sector at the start of the year was short-lived, with a further surge in building work put in place to a new record high. Rider Hunt said this was partly attributable to slowing residential growth freeing up resources for the non-residential sector
Despite the occasional monthly dip, the total value of non-residential building consents has continued to climb, signalling robust growth for the first half of 2006
Consents growth has been most remarkable in the hostels & boarding houses sector, including a flurry of activity in the past year on several large prison projects, and the miscellaneous buildings sector. Growth rates have risen for shops, restaurants & taverns, rebounded for hospitals & nursing homes, although this sector is quite volatile month to month, and slowed for offices & administration buildings, storage buildings and factories & industrial buildings. The social, cultural & religious buildings, education buildings and hotels & motels sectors have exhibited significant declines
Consents data suggests non-residential building activity in the near future is likely to grow most rapidly in the Waikato, Gisborne, Marlborough, Wellington & Otago regions, but to decline in Hawke’s Bay, Northland & Southland. Regional consents data tend to be very volatile, but for Marlborough, Wellington & Southland these seem to be continuing trends
Building industry confidence has improved a little on last quarter, when it was close to its lowest level in 4½ years. Many firms expect to increase output in the next 3 months, but capacity utilisation remains close to its 40-year high, with building construction firms in particular continuing to report difficulty in finding labour. Costs are expected to rise, but intentions to raise prices have remained stable, if high.

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