Auckland still leads the way in construction growth

February 1, 2017.

Auckland still leads the way in construction growth

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.

RLB New Zealand Trends in Property and Construction Q1 2017

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About RLB

With a network that covers the globe and a heritage spanning over two centuries, Rider Levett Bucknall is a leading independent organisation in cost management and quantity surveying, project management and advisory services.

Our achievements are renowned: from the early days of pioneering quantity surveying, to landmark projects such as the Sydney Opera House, HSBC Headquarters Building in Hong Kong, the 2012 London Olympic Games and CityCenter in Las Vegas.

We continue this successful legacy with our dedication to the value, quality and sustainability of the built environment. Our innovative thinking, global reach, and flawless execution push the boundaries. Taking ambitious projects from an idea to reality.