There has been a switch away from standalone houses towards townhouses, economist says
Consent issuance has been falling due to a number of pressures, including tighter bank credit, extremely low consumer confidence, rapid monetary policy tightening, negative migration flows, as well as supply chain problems, soaring material costs, and shortages of labour.
This was according to the latest Regional Insights for 2023 report, prepared by Tony Alexander with the support of Mortgage Trust. The report looked at the turning of the home construction boom in New Zealand.
“The nationwide number of consents has fallen from the 51,000 peak to 48,300 in the year to February and numbers for the past three months were down by 18% from a year ago. February was 29% down from February 2022,” said Tony Alexander, independent economist.
Alexander said one of the more distinct characteristics of the surge in construction in recent years has been the switch away from standalone houses towards townhouses. Houses used to account on average for more than 70% of all consents – but that figure’s now down to just 42%.
Northland
In the Northland region, the annual number of dwellings consents issued peaked at 1,557 in November last year, before dropping 15% in the three months to February, with standalone houses accounting for a relatively large proportion of consents in the region rather than attached units.
“There is a well-established relationship between rising sales and rising construction, then falling sales and falling construction,” Alexander said.
With annual dwelling sales in the Northland region having declined 27% in the past year and 40% lower in the three months to February from the year prior, it was expected that “much lower consent numbers are in the offing for the coming year at least,” he said.
Auckland
The annual number of consents issued in Auckland has dropped to 20,800 from a peak of 22,000 in September last year. The pullback was relatively mild given the 1.2% population shrinkage in the two years to June 2022.
“Further, much more substantial, easing of consent issuance is expected in light of the decline in dwelling sales by 37% in the year to February compared with a year earlier,” Alexander said.
Bay of Plenty
From a peak of 2,700 late in 2021, the number of consents issued in the Bay of Plenty has fallen substantially to 1,980, with the proportion of consents accounted for by attached dwellings rising since 2017.
With annual dwelling sales down by 38% in the three months to February from a year earlier, the total number of consents issued was tipped to fall much further.
Waikato
“The decline in numbers of new dwelling consents issued in the Waikato region is ahead of the nationwide performance but slightly lagging the decline in Bay of Plenty,” Alexander said. “The latter region saw its annual consent total peak in November 2021 while Waikato peaked in April 2022 at 5,160.”
The result was driven by an aging Auckland population, some internal migration south, as well as the expansion of Auckland’s broader economic base to the south and the development of the roading infrastructure.
The shift in the Waikato region towards construction of attached dwellings away from standalone dwellings has been greater than for the Bay of Plenty but less than for Auckland.
Dwelling sales in Waikato were down 36% in the three months to February from a year earlier – a decline which is tipped to run through 2024 and perhaps also 2025 “depending on how quickly interest rates decline next year and the heights to which net migration numbers go,” Alexander said.
Gisborne
The number of consents issued for new dwellings in the Gisborne region peaked at 187 in the year to August last year.
Consent numbers are set to rise as properties damaged by extreme weather get replaced, although this effect is likely to be comfortably swamped by the broader decline in construction due to high financing costs, low household confidence, and ending of an unsustainable pandemic-related surge in population from internal migration.
“In addition, as the labour market loosens it is reasonable to expect that some people will shift away from the Gisborne region in search of employment and higher incomes,” Alexander said.
The region has recently seen the proportion of consents accounted for by attached dwellings lift, though this was expected to go back down again with the pandemic effect of unusual demand from people escaping the cities unwinding.
The number of dwellings sold in the Gisborne region in the February quarter was down by a greater-than-average 45% from a year ago, while annual sales were nearly at record low levels.
Hawke’s Bay
In Hawke’s Bay region, the annual number of consents saw a far greater-than-average decline of 23% but remained above 10-year average levels – though probably not for much longer.
Alexander warned that the region “is vulnerable to a greater than average construction decline and price correction when the special factors unwind.” These special factors included the unusual population boost during the pandemic as well as a council project which identified where land for construction would come from to handle projected population change over 30 years. The unwinding also coincided with the destruction from Cyclone Gabrielle, which likely placed the region lower down the list of locations where aging Kiwis will consider moving to in the next few years.
The number of dwellings sold in the Hawke’s Bay region in the February quarter fell 27% from a year ago. And as with most of the country, the past few years have seen an increase in the proportion of consents accounted for by attached dwellings, but some unwinding of this trend may now occur.
Manawatu-Wanganui
In the Manawatu-Wanganui region, annual dwelling consent numbers peaked at 1,610 in December 2021. The numbers have since then dropped to 1,360 in the three months to February, up 3% a year earlier. Dwelling sales, meanwhile, were down 15% from a year ago.
“One supporting factor for the Manawatu-Wanganui region is the extension of the expressway network north of Wellington which as transport infrastructure has historically done around the world is encouraging a population movement away from the population-dense starting point of the network to further afield,” Alexander said.
The mix of dwelling consents issued between standalone houses and attached dwellings in the region has changed little.
Taranaki
Consent numbers in Taranaki have fallen by 35% in the past year, while issuance in the three months to February was down 5% from a year earlier.
Sales of dwellings in the three months to February were off 25% from a year earlier, suggesting “greater issuance weakness ahead outside of the region than in it – but weakness still to come along, nonetheless,” Alexander said.
There has been a recent blip up in the proportion of consents issued accounted for by attached dwellings, although no sustained trend shift has occurred or was likely to be underway.
Wellington
The number of consents issued in Wellington in the three months to February has remained unchanged, with the decline has yet to start.
“One factor insulating the sector to date may be the soaring of prices during the pandemic which strongly encouraged buyers to get a new property built,” Alexander said. “The fall in stock numbers will also have contributed to this newbuild drive. There is also the expansion of the population into the Kapiti Coast District, especially the retiring generation. Intensification is also being actively pursued in Lower Hutt City. In Porirua an extensive programme of state house replacement is underway.”
A construction decline is coming though, following a 25% fall in Wellington real estate prices and with stock levels more than double than those in the middle of 2021. In the three months to February, sales dropped 21% from a year earlier.
Nelson, Tasman, Marlborough
“In Tasman, the availability of land has facilitated firm population growth and construction to well above average levels in recent years,” Alexander said. “But the low availability of development land in Nelson City and generally low population growth for Marlborough have kept construction constrained in these two locations.”
The graphs below showed annual consent numbers of the three locations.
In Nelson, the lack of available land has driven some increase in the proportion of consents for attached dwellings. But this was not the case for the other two locations.
In both Tasman and Nelson, dwelling sales were falling, suggesting some weakening of construction soon, though perhaps of lesser magnitude compared to the other regions already mentioned. In Marlborough, the decline in dwellings sales was more noticeable, suggesting that construction could fall away more than for Nelson and Tasman, but perhaps only slightly.
West Coast
On the West Coast, consents hit 280 late last year from a low of 85 in 2016. In the most recent three-month period, consents were down by 30% from a year ago.
“A substantial building sector easing does seem reasonable to expect although with some mitigation from rebuilding caused by Westport flooding,” Alexander said.
Recently, the proportion of consents accounted for by attached dwellings has increased, although this shift will probably not be sustained given the availability of land.
Dwelling sales in the three months to February fell by 29% from the prior year. No special real estate turnover weakness is apparent on the West Coast.
Canterbury
Consent numbers in the three months to February were down by 20% from a year ago.
“The decline in dwelling sales about matches the NZ fall though with annual turnover further above 2011 lows than is the case for the rest of the country,” Alexander said. “But if we strip away the 2011 earthquake’s effect of suppressing sales this comparison may not count for much.
“On the face of it, the region appears set for as large a construction fall as the country on average. However, surging net inward migration will benefit locations like Auckland and Christchurch more than the regions. Christchurch also has an affordability benefit for young buyers over the other cities, and the city’s image appears to be holding up a lot better than Auckland and most certainly Wellington. That, coupled with rental accommodation quality and cost may account for the surge in tertiary study in Christchurch compared with Auckland and again, Wellington in particular.”
The report also noted an ongoing shift towards intensification. Some easing may occur soon, however, in the wake of a rash of inner-city building that did not seem to have captured the respect of all Christchurch dwellers.
Dunedin City/Otago
In the three months to February, the number of dwelling consents issued in Dunedin City slipped 3% from a year earlier. Annual consent numbers have already fallen from the peak of 640 reached in mid-2022 to 560.
“Further falls are likely as consent numbers remain well above the 10-year average and dwelling sales have been moving downward since the first half of 2021,” Alexander said. “Annual sales don’t alter to the same degree in Dunedin as most other locations, but they are nonetheless at record low levels since our data started in 1993.”
Reduced residential construction in Dunedin is in the offing, as the population growth benefit from the pandemic ends, although it may get some benefit from the rapidly rising net immigration to New Zealand.
The report noted that the surge in the proportion of dwelling consents for attached units in the past year was highly unusual, which Alexander said, “could easily reverse and probably will.”
Queenstown Lakes
In the three months to February, consent numbers in Queenstown Lakes were down 50% from the prior year. But these data are highly volatile and four months earlier, the annual change was growth of 17%.
Dwelling sales have fallen firmly recently, suggesting that there’d soon be extra weakness in consent numbers and then construction.
There were more consents issued for attached than standalone dwellings and the requirement for intensification indicated that this could be a more sustained shift than for other non-big city locations.
Southland
The Southland region saw the annual number of dwelling consents issued hit a record of 485 in August last year. Since then, numbers have slipped to 432 and in the three months to February and were 15% lower compared to the prior year.
In contrast to consents recently reaching record levels, real estate turnover has just hit a record low, suggesting that “we should expect additional declines in the number of consents being issued in the Southland region,” Alexander said.
There has been no shift towards standalone houses accounting for a smaller proportion of all dwelling consents issued in the region. This was unsurprising given the availability of land in Southland as well as the lifestyle people specifically seek when they move there, the Regional Property Insights report said.
Click here for the full report.
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