31 Jul 2012

Rising costs could hamper building activity

7:51 am on 31 July 2012

Building activity is expected to continue to rise this year, though a fall in Auckland's housing market and rising construction costs are highlighted as areas of concern.

Statistics New Zealand says the number of consents rebounded a seasonally adjusted 5.7% in June, compared with the previous month when they plunged more than 7%.

Excluding volatile apartment figures, permits rose 2.1%.

The increased activity is underpinned by a surge in building approvals in Canterbury, which more than doubled from a record low a year ago.

ANZ Bank senior economist Mark Smith says the signs of recovery are more evident in the non-residential sector, which will be encouraging for construction activity in the second half of the year.

But he says residential sector construction costs have increased which will not help affordability.

Mr Smith says the 1.9% fall in housing permits in Auckland compared with last June is a worry and puts more pressure on real estate prices.

He says things may pick up because population growth in Auckland is strong, which should mean stronger construction needs for that region.

Mr Smith says there are no real signs of activity picking up in Auckland at present, however, and if that continues the stresses that are being seen are likely to intensify.

He says the Reserve Bank will be closely watching rising construction costs, which also put pressure on housing affordability.