6 Mar 2023

Construction sector shows signs of cooling with fall in volume of building work

2:51 pm on 6 March 2023
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The number of new residential building consents have eased in recent months, after peaking at more than 50,000 last year. Photo: 123RF

The strong construction sector is showing signs of cooling as house building falls away, with the first drop in the amount of work done in more than a year.

Stats NZ figures show the volume of building work done fell 1.6 percent in the December quarter on the previous three months, as house building fell 2.6 percent more than offsetting a 0.4 percent rise in non-residential building.

It was the first fall in the volume of work since the September 2021 quarter, when Auckland was in lockdown for five weeks.

The volume numbers discount price changes, especially inflation, which came through in a 19.7 percent rise in annual values.

Westpac senior economist Satish Ranchhod said the sector continued to run hot although the signs of a slowdown were becoming more obvious.

"A peak in the building cycle is approaching. Capacity constraints, especially shortages of skilled staff, remain a handbrake on how quickly projects can be completed."

"In addition, financial conditions in the construction sector have become a lot tougher. Operating and financing costs have risen sharply over the past year."

Ranchhod said the sector was feeling the growing uncertainty amid falling house prices and wary buyers.

"That's meant prospective buyers are increasingly nervous, and developers are cautious about bringing new projects to market. Builders, as well as those supplying into the industry, have told us that those conditions are weighing on demand, with forward orders dropping off."

The number of new residential building consents issued peaked last year at more than 50,000, but have eased in recent months.

The building data are one of the last bits of the fourth quarter economic growth jigsaw due out in the coming week, and suggests the last three months of 2022 may have been lacklustre.

"The leading indicators for the (building) sector have been getting worse and worse, which has made us nervous about building activity giving way, at some stage soon," BNZ senior economist Craig Ebert said.

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