According to industry analyst and economic forecaster, BIS Shrapnel , detached housing consents are leading an upward spiral in New Zealand’s residential building sector. This is the first recorded growth since June 2007.

BIS Shrapnel’s Building and Construction in New Zealand 2009/10 – 2015 building industry research report revealed a 27 per cent increase in detached housing consents in the December quarter of 2009. BIS Shrapnel is expecting this rebound to continue over the coming years, driven by a shortfall in new house supply relative to demand.

Adeline Wong, BIS Shrapnel Senior Project Manager and author of the report explained, “Consumer confidence is expected to gradually pick up as economic growth strengthens. Despite forecast increases in mortgage rates over the next two to three years, although the official cash rate is forecast to remain well below its peak in 2007/08, we expect home buyers’ confidence to be boosted by wages and employment growth.”

BIS Shrapnel notes relatively high net migration levels will also support the housing market over the next three years, and is projecting the average net migration to be 15,000 persons per annum, being a decrease from the high level of migration seen over the past year or so. It is expected to reach 26,000 persons by the end of March 2010, but is still quite high by historical standards.

Over the next 18 to 24 months the lack of housing stock will continue to support median house price growth. Wong says prices will be driven up as a result of dwelling completions not meeting the demand for housing.

BIS Shrapnel also explained that this residential building cycle will top out at a lower level of activity compared to the last peak in 2004, and due to rising mortgage rates and house prices, building activity will be constrained by worsening home affordability.

House prices are expected to continue upward due to tightening new housing supply over the short term, while housing demand is expected to increase amid strengthening economic growth.

BIS Shrapnel says the North Island, led by Auckland, is predicted to lead the rebound in residential building activity over the next three years.

“We believe the housing stock deficiency in the Auckland region will continue to build up, due to its protracted downturn over the past seven years which has seen building consents languishing at near record low levels,” says Wong.

BIS Shrapnel says the non-residential building sector has held up relatively well amid adverse economic conditions, boosted by office, education and sports stadium building activity. However, overall non-residential building consents are expected to soften in 2010/11 as office and sports stadium building activity drops off.

The downturn is expected to be moderate as it will be driven by weak demand, not excessive supply, and a lack of financing for developers following the credit squeeze during the global financial crisis.

“The recent recession and continued weak economic conditions has resulted in weak demand for commercial properties,” says Wong. “This has caused rental rates to soften and is exerting upward pressure on vacancy rates. This is expected to get worst before it gets better, in view of new supply coming into the market over the next couple of years in particular.

“A lack of funding has curtailed or delayed most new projects during the past 12 months, hence a reduction in new supply over the next two to three years. This means once demand picks up again current excess space will be quickly absorbed, vacancy rates will tighten and rents will rise – setting the stage for the next upswing in new construction. Strengthening leasing markets will then bring back the equity injection that will underpin the next round of commercial projects starting from calendar year 2014.”

Robert Mellor, Managing Director of BIS Shrapnel, will give a detailed presentation of the company's forecasts for New Zealand building and construction activity at the seventh annual Building and Construction Forecasting Workshop. The workshop is to be held at the Stamford Plaza in Auckland on February 23.

Further information regarding the workshop can be obtained from BIS Shrapnel.