19 Jan 2017

Economy in fine fettle, house-building consents up

3:14 pm on 19 January 2017

The economy has continued to power along, underpinned by housing.

Monthly building consents have hit 11-year highs, while activity in the manufacturing sector remains robust.

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Home building consents in Auckland have been rising each year after bottoming out in the year to November 2009, in the wake of the Global Financial Crisis. Photo: 123rf.com

In construction, the number of consents issued for new houses rose 5 percent to 2973 in November compared with the same period a year ago - its highest level since March 2005.

"Almost 40 percent of the new homes consented were in Auckland," Statistics New Zealand business indicators manager Melissa McKenzie said. "The Waitemata and Gulf, Albert-Eden-Roskill, and Manukau wards had the biggest increases in the Auckland region."

However, when adjusted to remove the impact of seasonal fluctuation, the number of new homes consented fell 9.2 percent in November 2016 compared with October 2016.

And the trend is showing signs of decreasing after reaching a 12-year high in mid-2016.

Westpac senior economist Satish Ranchhod said that would not be welcome in Auckland, where pressure for more houses was unrelenting.

"We see that dwelling consent issuance in Auckland is up 6 percent over the month, taking the total number of new dwellings consented over the past year to just over 10,100.

"This is still below the level Auckland needs in light of the region's strong population growth and existing housing shortage. More concerning, the trend in dwelling consent issuance in Auckland appears to have flattened off," Mr Ranchhod said.

While the annual number of consents in Auckland topped 10,000 for the first time in 12 years, it was below the government's forecast of 12,000 for 2016.

Data on the number actually built was still being gathered, but the current level was much lower than the level of consents, and well below the 13,000 needed annually to halt the city's worsening shortage.

Analysts have pointed out the construction sector is stretched, finding it difficult to get workers and equipment.

But Mr Ranchhod expected Auckland's Unitary Plan to loosen up building rules and said rising house prices should see consents pick up over the coming year.

"The fundamentals of building do stack up."

On an annual basis, 30,303 new homes were consented in New Zealand in the year to November, up 13 percent from the previous November year.

Meanwhile, construction is keeping manufacturing busy.

"Activity in the construction sector, both residential and non-residential building, is underpinning a lot of demand for manufactured goods," BNZ senior economist Doug Steel said.

The BNZ-Business New Zealand Performance of Manufacturing Index stood at 54.5 points in December, matching November's activity. A reading over 50 indicates expansion.

Confidence has risen, with a net 23 percent of manufacturers expecting better economic conditions over the first half of this year, compared with a net 4 percent in the previous survey.

"For the foreseeable future that construction activity looks like it's going to continue to be a good support," Mr Steel said.

Consumer confidence rises

Consumers are also feeling more upbeat.

The ANZ-Roy Morgan Consumer Confidence Index rose more than four points to 128.7 in January from 124.5 in December, its highest level since April 2015.

"The summer weather might be dodgy so far, but consumers have started 2017 on a high," ANZ chief economist Cameron Bagrie said.

Job growth, low interest rates, and higher dairy prices were helping boost sentiment, Mr Bagrie said.

And it appeared households were not getting carried away.

"Happy households are of course a good thing, but over-exuberance in terms of borrowing and spending would come at the cost of growth later, and would up the ante on the risks of a boom/bust scenario.

"Early indications for [the December quarter] spending suggest that households might be feeling good, but they aren't getting silly," Mr Bagrie said. "That's a good thing."

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