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 Analysts at ANZ Bank New Zealand Limited,  (ANZ), explained that the New Zealand’s dwelling consent issuance fell 7.6% m/m in June, following May’s 6.9% rise.  

Key Quotes:

  •  Bottom line

Looking through monthly volatility, building work pushed higher in the third quarter of 2018, despite difficulties faced by construction firms.

  • Key points

“Consent issuance has been volatile of late. The number of seasonally adjusted dwelling consents fell 7.6% m/m in June, following May’s strong print (+6.9% m/m). Multi-dwelling consents fell 14.4%, after lifting 7.6% last month. Consents for ‘houses’ fell 3.1%, after lifting 6.4% m/m in May.

In trend terms, growth in dwelling consent issuance has been easing since March (from 3.5% m/m to 0.1% currently). In annual terms, dwelling consent issuance is running at a high level of 32,889, with the size of houses consented having trended smaller over time. Consented work (from a floor area perspective) fell 15.5% in June, after increasing 19.4% m/m (sa) in May. Over the quarter, residential work consented increased 7.9%, pointing to a solid increase in residential investment in Q3.  

The construction industry is grappling with challenges, including capacity constraints, low productivity, and financing strains from profit squeeze and reduced credit availability. There is some risk that activity softens in coming months, given recent housing market cooling. Yet recent data shows resilience in activity, despite the fall in the month and difficulties faced by construction firms, along with reports that the pipeline looks less assured. We may see some bumps in the road ahead, but activity remains elevated, at least for now.

The cost of consented work per square metre continues to increase but at a slower pace – up 2.8% y/y (3mma) down from 10% in March. Construction cost inflation is expected to continue at a moderate pace, but recent softening may indicate firms are wary of passing through cost increases, despite an evident profit squeeze, perhaps because sentiment is generally downbeat.

On the non-residential side, consents have remained strong, with consented floor area up 2.4% q/q. This is likely related to clear capacity constraints. But again, this strength may prove short-lived, given business pessimism and moderating investment intentions.”