The Unconditional Blog

The impartial voice of the industry


Building consents data provides valuable insight into property market trends

Posted on: December 9th, 2008 | Filed in Architecture & Construction, Buying / Selling a home

The latest headlines concerning the new homes market certainly echo the general sentiment of the economy – “Home Construction Slips” as reported highlights a 16 year low for new dwelling consents, just 1,173 issued in October – a far cry from the 2,377 in October 2006.

Equally “Architects say building industry on a knife edge” highlights the prospects for future consents in the coming year which are expected to remain depressed as 70% of those surveyed in the profession believing the industry will worsen in the next year with no bright outlook until 2010 or 2011.

The overall property market is intertwined with new builds, property transactions as well as renovations & alterations, and there is no doubt that everyone is well aware that these industries are collectively facing some major challenges as what has been a boom for the past 7 years has very quickly gone into reverse. As ever the future is unknown – yet is exactly what everyone wants to know!

To shed some light onto this matter I have analysed some historic data to examine this sector of the economy which between new builds and re-sale accounts for over $32 billion per annum (even in today’s depressed climate). Analysing the monthly data of residential consents and property sales since the beginning of 2002 shows some key trends these are presented in the graphs below:

Observing the trend of residential consents issues on a moving annual total basis (red line – left hand axis) against residential property sales (blue line – right hand axis) highlights the correlation of peaks and troughs, with the key period of Jan 2004 to Sep 2005 when the lines diverged driven in part by significant apartment developments.

The current period since June of 2007 has seen the very fast market correction of property sales matched to a slower reaction from the building industry to the credit crisis as the pipelining effect takes longer to flow through the system. The key numbers in this graph are the peak to current level of property sales – 120,000 to now 60,000 (not as yet called a trough!) and the current level of consents annualised at 20,000 from the peak of nearly 33,000 in June 2004.

The feedback from most economists is the fact that projected population growth a level of new builds of around 23,000 is what is required to sustain demand in the long term (Berl report of 2007 on The Economic Impact of Immigration on Housing in NZ speaks to a level of 23,600 per annum).

Matched against the prior graphs perspective of volume of consents and sales is this representation of the value of transactions and consents issued on a moving annual basis.

The most striking aspect is the extreme view of growth and subsequent slide of both the value of aggregated sales and consents issued. The former (blue line – right hand axis) showing again a faster slide from the peak of residential sales in value terms at the 12 months to June 2007 at $41 billion to the current level of $25 billion in the 12 months to October – an overall time period of just 16 months. The value of consents (red line – left hand axis) shows a slide in value from the peak through 2007 at around $8 billion per annum, already slipping through $6.5 billion.

The final analysis of this data is the average property price matched to average consent value.

Here the graph exhibits a clear parallel of trend albeit with a divergence of average value to transaction sale whereby in 2003 the gap was around $40,000 climbing in 2005 to $70,000 before hitting a peak in late 2007 at $120,000. The subsequent slide in this differential is shown by the graph below for the period of the last 4 months to October when average selling price has come back nearly $30,000 and average consent value has actually risen by $30,000.

Post your views