Auckland still leads the way in construction growth
February 1, 2017.
Released today, the Rider Levett Bucknall (RLB) Forecast 82 report – New Zealand Trends in Property and Construction – confirms that Auckland continues to lead the way in construction growth.
Prepared by the New Zealand Institute of Economic Research (NZIER) exclusively for RLB, Forecast 82 confirms that construction demand continues to strengthen in New Zealand’s residential sector, with a slight easing in the non-residential sectors.
Strong population growth underpins demand
Grant Watkins, Director of RLB in Wellington said, ‘Construction demand remains robust, underpinned by continued strong migration-led population growth. There has been some easing in non-residential consent issuance in recent months, but this follows a period of very strong growth, particularly for the construction of education and health facilities.’
Migration inflows into Auckland strongest
According to the Forecast 82 report, there were net migration inflows into all the regions over the past year, with inflows into Auckland remaining exceptionally strong. Net inflows into Auckland totalled over 33,000 in the past year, suggesting over 11,000 new dwellings are required just to keep up with net migration inflows alone. At under 10,000 dwelling consents over the past year, it may not be enough to meet the demand.
Demand also rising in outer regions
Mr Watkins continued, ‘These net migration flows provide some indication of housing market pressures across the regions. Besides the continued surge in residential construction demand in Auckland, demand has also risen strongly in the “halo” regions of Waikato and Bay of Plenty, reflecting the spill-over effects of strong population growth in Auckland.’
Building picks up in Wellington but eases in Canterbury
Residential consent issuance has also picked up in Wellington, as strong house price growth over the past year encourages more housing supply in the region. In contrast, house-building demand in Canterbury is easing, as the residential part of the earthquake rebuild nears completion.
Demand for commercial buildings slowing down
Non-residential construction demand shows signs of easing in recent months, as consent issuance for education and health facilities decline following a period of strong growth.
Demand for commercial buildings also eased, despite improving business confidence. But we expect strong population growth will support non-residential demand over the next few years.
Downward pressure on New Zealand dollar expected
The Reserve Bank cut the Official Cash Rate to 1.75% and indicated it did not expect to cut interest rates further. With inflation showing signs of turning, we do not expect any further easing from the Reserve Bank. The Federal Reserve’s continued tightening should put downward pressure on the New Zealand dollar.
Highest sustained inflation forecast since construction boom
NZIER forecasts construction cost inflation to edge up to 5% over 2017, and to moderate to just under 4% through to 2020. This represents the highest sustained inflation in the sector since the construction boom of the mid-2000s. However, NZIER does not expect the inflation to be as sharp for two reasons:
Firstly, the low inflation environment limits the extent to which rising costs can be passed on quickly. Secondly, strong net migration is helping to mitigate skills shortages in the building sector.
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