Strong net migration continues to support construction demand
April 24, 2017.
The Rider Levett Bucknall (RLB) Forecast 83 report – New Zealand Trends in Property and Construction – released today, confirms that continued strong net migration will underpin construction demand in the long run.
Prepared by the New Zealand Institute of Economic Research (Inc.) (NZIER) exclusively for RLB, Forecast 83 states the underlying drivers of construction remain strong, with a continued surge in net migration boosting demand for new dwellings and commercial buildings.
Grant Watkins, Director of RLB in Wellington commented, ‘Annual net migration edged up to over 71,000 for the year to January 2017. The number of residents leaving New Zealand remains very low, while there remains strong growth in the number of people moving to New Zealand.’
‘Net migration in Auckland remains particularly strong, and this continues to underpin strong housing demand in the region,’ he added.
According to the Forecast 83 report, apart from supporting demand across many sectors including construction, the increased number of permanent migrants has also expanded the labour supply. Over the past year, growth in work visas in trades have been particularly strong, as migrants help to mitigate labour shortages in the construction sector.
Higher construction costs putting some projects on hold
However, construction costs have increased sharply over the past year, with the acceleration particularly evident in Auckland where capacity pressures in the region’s building sector are more acute. Higher construction costs, along with reduced availability in credit, have seen some construction projects put on hold. There has been a softening in consent issuance for houses, apartments and retirement villages in recent months.
NZIER forecasts construction cost inflation to edge up to over 7% in 2017, and to moderate to under 4% by the end of 2020. This represents the highest sustained inflation in the sector since the construction boom of the mid-2000s.
Grant continued, ‘Beyond the softening in construction demand in the short term, we expect migration-led population growth will underpin strong underlying demand for residential construction over the coming years. For example, net migration into Auckland totaled around 33,000 over the past year, suggesting around 11,000 new dwellings would need to be built in the region just to keep up with net migration.’
Residential demand looks set to rise despite global risks
‘Non-residential demand continued to ease in recent months, reflecting weaker demand for commercial buildings despite high levels of business confidence. Partly offsetting this decline has been stronger demand for accommodation buildings, as construction finally responds to the capacity pressures in the tourism sector in the face of continued high numbers of tourist inflows,’ he said.
According to Forecast 83, the domestic outlook continues to look very robust, but against a backdrop of increasing global risks. Construction and tourism remain key drivers of growth in the New Zealand economy with activity broadening beyond Auckland, while the continued recovery in global dairy prices is also underpinning improved confidence in the rural regions.
Although some cities directly affected by the earthquakes such as Kaikoura are still rebuilding, the effects have largely been contained. A strong Government balance sheet will comfortably absorb the costs of damage, with room still left for sweeteners heading into election year.
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