Building heads for a high

By Chris Kane - 1 October 2015, Build 150

Housing demand in Auckland is pushing the value of building and construction towards an all-time high next year.

THE VALUE OF BUILDING and construction activity in New Zealand is rapidly increasing and is forecast to hit an all-time annual high of more than $36 billion by 2016. This is according to the third National Construction Pipeline Report released by the Minister for Building and Housing, Nick Smith, in July.

Looking ahead 6 years

The report, jointly produced by BRANZ and Pacifecon (NZ) for the Ministry of Business, Innovation and Employment (MBIE), looks at the forward pipeline of construction work for the 6 years ending 31 December 2020. The annual value of all building and construction nationally is projected to increase by 19% over that time.

‘This third National Construction Pipeline Report shows that New Zealand is building more by value than ever before, even after allowing for inflation,’ says MBIE Manager Building Systems Control Chris Kane.

Figure 1: Value of all construction, historic and forecast. Source: Statistics NZ, BRANZ and Pacifecon.

Auckland the biggest driver

Demand continues to be driven by Auckland residential construction, which is expected to grow approximately 126% by 2018. At the same time, the Canterbury residential rebuild is starting to take off inside the Christchurch city centre. To date, most of the rebuild has been on the city fringes and in surrounding districts.

‘The total forward workload for New Zealand is challenging, especially in Auckland. It has implications for affordability and the capacity of the supply side of the industry to provide what people want, even if they can afford it,’ says BRANZ Principal Economist Ian Page, who helped prepare the report.

Value and cost per dwelling both up

While the value of all building and construction is increasing, so is the cost per dwelling.

‘The cost of building a house is rising, over time, so we’re building fewer houses for the same spend,’ says Chris Kane. Factors driving this include demand for larger houses and expensive finishes and fittings, such as designer kitchens. Specification, not quantity, is driving cost.

Figure 2: Historic and forecast value and number of consents for residential building. Source: Statistics NZ and BRANZ.

More multi-unit dwellings

‘A notable trend is the rise in the number of multi-unit dwellings, including apartments, townhouses and units, which should contribute to more affordable housing,’ he says.

‘Consents for multi-unit dwellings indicate they will make up about a third of new dwellings nationally by 2017.’

Figure 3: Number of new dwellings consented nationally per quarter, by type. Source: BRANZ.

Useful indicator of future demand

Chris Kane says the report is an important market indicator, helping to ensure the building and construction sector is well resourced to meet coming demand without compromising quality.

‘This third report validates our previous ones. Actual data from 2014 shows our forecasts are reasonably accurate. The National Construction Pipeline gives people reliable information on which they can make decisions with confidence.’

Key findings

New Zealand is constructing more by value than ever before – peaking at more than $36 billion in 2016, $7.5 billion higher than the last peak in 2007.
Demand is mainly being driven by Auckland residential construction.
The annual value of all building and construction nationally is projected to increase by 19% from 2013 to 2020.
The forecast spend on all construction for the 3 years to the end of 2017 is $106 billion.
Non-residential building shows steady growth, peaking at $17.2 billion in 2016.
Residential building shows strong growth, peaking in value at $19.5 billion in 2017.
The cost per dwelling is rising – we’re getting fewer houses for the same spend.
There’s a move to higher-density housing – in 2017, multi-unit dwellings (apartments/ townhouses/units) will make up a third of all new consented dwellings nationally.