The National Construction Pipeline Report 2018, out on Monday, forecasts a continuing rise instead of a tailing off in housing construction, a less optimistic future for non-residential & flatlining for infrastructure.
The report provides a projection of national building & construction activity for the next 6 years, ending 31 December 2023. It includes national and regional breakdowns of actual and forecast residential building, non–residential building and infrastructure activity. The report is based on building & construction forecasting by the Building Research Association (BRANZ) & Pacifecon NZ Ltd data on researched non-residential building & infrastructure intentions.
The 5 key findings in the report:
- Sustained growth is forecast for building & construction nationally
- National dwelling consents expected to exceed historic highs with 43,000 in 2023
- Multi-unit dwellings overtook detached house consents in Auckland in 2017
- Non-residential building growth expected for Auckland, Waikato & the Bay of Plenty
- Wellington experienced the strongest total construction growth in 2017.
MBIE said all previous reports had been adjusted to 2017 dollars for comparison.
Switch to more sustained growth
The report suggests growth will moderate, but be sustained: “For the first time since the report was initiated in 2013, a peak in total construction value is not expected within the forecast period. Instead a more moderate sustained growth is forecast for the next 6 years. The 2017 report forecast a peak in total construction value of $42 billion in 2020. This year’s forecast is for activity to remain at current elevated levels until the end of 2020, with growth expected from 2021 to over $41 billion in 2023. The forecast of sustained growth reflects strong researched project intentions nationally.”
How good was last year’s forecast?
The ministry asks in this year’s report how well did it do with the 2017 forecast. I noted when that report was released last August that it acknowledged an optimism bias in forecasting, then didn’t seem to take it into account.
MBIE bears that out: “The revised total construction forecast for the period 2017-23 is for moderate & sustained growth. The higher & earlier construction peak, which was forecast for 2020 in last year’s report, is expected to give way to long-term growth. This year’s forecast is lower than previously forecast.
“Actual national growth decreased by 0.3% in 2017, whereas the 2017 report had expected 10% growth. All 3 construction types (residential buildings, non-residential buildings & infrastructure construction) grew less than expected. Long-term growth is now forecast showing continued growth to 2023. This is unique compared with all previous reports, which have all forecast a peak at some point in their 6-year views.”
Housing forecast – true if KiwiBuild succeeds
While, in the 2018 report, the ministry acknowledges over-optimism last year, the forecast for housing consents is even more optimistic. Whereas the 2017 report showed consents peaking at about 34,000 in 2019 then tailing off, the 2018 report shows consents continuing the almost straightline rise since the market bottomed below 14,000 in 2011 (13,269 in the 12 months to July 2011).
“Over the next 6 years the number of dwelling units consented is forecast to increase by 39% to a forecast high of 43,000 dwelling units in 2023. Dwelling unit consents are expected to go past the 2004 peak (31,423 dwellings) in 2018 and grow year-on-year throughout the forecast period. This is considerably higher & longer-term dwelling growth than was forecast in the 2017 report.”
The latest consent figures, released by Stats NZ yesterday, show the pipeline report is correct on the first part of this forecast: consents for the 12 months to June totalled 32,860.
The dwelling unit forecasts are based on Stats NZ’s December 2017 household formation data, which provides estimates of the number of new dwellings required derived from population estimates. This information provides estimates of the number of new dwellings required to meet both expected population growth and to remedy already existing housing shortages.
One reason for the greater optimism: “KiwiBuild is expected to provide greater certainty of the forward pipeline of construction work and allow the sector greater ability to manage constraints and scale up to provide year-on-year increases in dwelling numbers into the future.”
On non-residential, this year’s report forecasts a lower peak in 2019, the same time as the peak forecast previously. The 2017 report forecast 12% non-residential building growth for 2017 nationally, but actual recorded growth was a fall of 3%.
Infrastructure to flatline?
The 2018 report’s forecast for infrastructure activity nationally is far lower, almost flatlining for 6 years at about $7 billion/year, whereas the 2017 report had infrastructure spending rising from $8 billion at the start of this year to $10 billion in 2023.
The new report says: “Last year’s report expected 6% infrastructure growth, where actual recorded activity was a 3% decrease. National infrastructure values are historically more consistent year-on-year than residential or non-residential building activity values.”
Smoothing out the optimism bias
Pacifecon recognises the optimism bias inherent in development intentions, and has been steadily reducing the size of project it individually scrutinises more closely. For the first report in 2013 projects over $100 million were individually scrutinised. This year & last year, projects over $50 million were scrutinised.
The report explains that all intentions in building & construction come with some level of overconfidence, but many projects may lag behind their original timelines or are occasionally cancelled. “This optimism bias of non-residential building & infrastructure construction intentions in the Pacifecon dataset can be seen in the raw (un-‘smoothed’) known intentions data. This shows in a higher than expected number of projects over the next few years, and a lower than expected number of projects over the longer term.”
9 August 2017: Construction pipeline report continues to show high optimism bias
27 July 2016: $200 billion construction pipeline forecast for next 6 years
Attribution: MBIE release, pipeline report.