The Unconditional Blog

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Emerging concern over supply of new homes as consents plummet

The economic slowdown is firmly applying the brakes to the broad property market with the latest stats of building consents mirroring the record lows experienced in the real estate market.

The January stats show just 812 consented dwellings – the lowest since record began 34 years ago, with real estate sales in January at 3,706 the lowest since the early 90’s.

Whilst the median price for property is declining it is interesting to see that the average price of residential construction is actually increasing. Over the 9 month period from May 2008 to January 2009 the average value of residential consents rose from $310,000 to $393,000. Seen on this graph below the average value of consented residential construction on a 3 month moving average (red line) has now intersected with the average sales price of residential property again measured on a 3 month moving average basis (blue line).

NZ new home consents and property sales at Jan 09

This intersection is the first since early 2002 and highlights a couple of interesting trends.

  1. The very low level of new consents contain virtually no apartment developments so prevalent through the past decade which held consent values down.
  2. The market for new builds is maintained through more top end custom designed properties which is spiking the average, albeit from a low base of number of consents.

A consequence of this as highlight in the NBR is the very real possibility that such a drastic cut in new builds especially at the bottom end of the market generally serviced by group home builders could lead to a very real shortage of property with consequential impact on the supply side of the market.

And just before the howls begin from those that think we don’t need any more houses as the plane queue up to take kiwi’s to Australia it is worth reviewing the latest report from Statistics NZ which shows that despite the net record exodus to Australia of 35,400 in the 12 months to January 2009, the overall net migration was positive to the tune of 4,500 in the past year.

Article Discussion

  1. Ross Brader says:

    Other factors leading to an increase in new build cost would be new rules related to double glazing and increased costs of construction due to most claddings now requiring cavity systems and the cost of additional council inspections throughout the construction process in order to ensure that correct procedures are followed.

  2. Ross

    You make an interesting point which personally I think is impacting the costs of new home construction. However the thing I also reflect on is that consent data is based on completed consent forms which require the applicant to define the scope of work and budget.

    Clearly this is not an exact science based on actual costs, but I would be surprised if applicants at that stage would have any idea of likely costs for additional inspections – most costs are QS costs on a $ per m2 basis.

  3. Andrew Burns says:

    Net migration of 4500 per year is the lowest since 2001. With 812 consents in janurary, it still equals about 9744 dwelling consents per year if you extrapolate that monthly figure. I struggle to see where the supply shortage is coming from, even if fewer entry level properties are being built. Impacting on the supply issue is occupancy levels of existing houses and whether this will increase due to the calibre of immigrants, along with how many houses on the market are currently empty that could be tenanted or potentially sold.

  4. Justin Thornley says:

    There is one very large and obvious reason for the increased cost of building that seems to be overlooked.

    Inflation, exacerbated by 9 years of frivolous governmental money grabbing and spending at will. A 43% increase in civil servants or civil beneficiaries depending on your viewpoint, since the last government came to power is a pretty clear starting point as to why inflation has rocketed.

    Applied specifically to the building industry the cost of the materials, approx 70% of the cost of any project, has to weather taxation at every point in the supply chain. Put simply in order to attain a 4 x 2 length of pine the end user pays tax at every step of that process. The pine seed suppliers, the pine plantation growers, the tree harvesters, the freight to the mill, the milling, freight to the supplier and finally supplier margin. (There are many more steps missing)

    Taxation compounds at every point on every product which eventually means the build cost of your house has risen 30% to accommodate and pay for various civil servants.

    Some of these civil servants are the same experts that legislate and preside over the building of your house consulting the rule book every step of the way, written by other civil servants and experts that are the first to point the finger at the builder when a leaky home emerges and then tuck tail and run when the builder points the finger back.

    The other major contributing factor is the approximate DOUBLING of development contribution fees by local councils which ultimately come out of the pocket of the new home owner when they purchase the house. Granted development levies are needed to expand infrastructure, but a responsible public administration would have spent the huge excesses in past years on this, as opposed to Rap trips to the States under the guise of cultural development.

    Look anywhere and Labours inflation chickens are only beginning to come home to roost, unfortunately to a chicken coup that has been repossessed by the chicken feed merchants, J

  5. Tania Mayo Tania Mayo says:

    In response to Andrew Burns – “I struggle to see where the supply shortage is coming from, even if fewer entry level properties are being built.” If demolished buildings (fire, obsolesence, change of zoning) and the coming of age of the 1980’s baby boomers now looking for new housing are taken into account this could well make up the difference in numbers.

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