When will the building recovery pick up speed?

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“When will the building recovery pick up speed?” is the question posed by the Department of Building and Housing’s second Building and Construction Outlook quarterly report published in June.

The quarterly report provides a succinct yet comprehensive overview and analysis of
trends in the construction sector.
The first report published in March said the slump in residential building activity had bottomed out, and the non-residential sector was showing signs of weakness.

Downward slide

These trends are confirmed by the second report which says businesses exposed to the
residential sector are reporting higher levels of activity than a year ago, but the non-residential outlook has worsened, with a downward slide in consents.
Despite the slow and patchy pace of recovery in the first half of the year, the report says leading indicators still point to a rise in construction activity in 2010.

“With the outlook for employment now improving and New Zealand’s projected housing shortage increasing, the fundamentals for an upswing in home building are in place.
“The biggest concern currently facing the industry is that the residential recovery will not be strong enough to boost a construction industry which is still picking itself up from the 2008-09 downturn. This is still a risk in the short term.”

The report says the turn in the residential cycle was confirmed by a 7.4% rise in
construction activity in the December 2009 quarter, following two years of either flat or
negative growth.

The trend for housing consents continued to rise in the March 2010 quarter but then began to level off. Although consents are tracking well ahead of last year, they are well below the average over the past 15 years.

Potential for home building activity

Healthy migration inflows over the past year mean an increase in housing stock is overdue. This, coupled with an improving outlook for the New Zealand economy, and an
encouraging drop in unemployment in the March quarter, means there is potential for
home building activity to gather pace in the second half of the year.

Activity in the non-residential sector fell 12.6% during the last two quarters of 2009, and consents for the March 2010 quarter were the lowest since the June quarter of 2010.
Government spending is underpinning the sector to some extent, but there are signs of this stimulus coming to an end. Conditions in the sector are predicted to get worse before they get better.

For a full analysis, which also covers interest rates, bank lending, house prices, home sales, rents and the cost of home building, download the Building and Construction Outlook June Quarter 2010 from the Department of Building and Housing’s web site at www.dbh.govt.nz.