NZ industry facing slight decline

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Residential building and infrastructure construction picking up the slack from non-residential sector

The total value of building authorisations in New Zealand is estimated to fall by 5% for the year ended March 2011 due to a downturn in non-residential building, according to leading industry analyst and economic forecaster BIS Shrapnel.

BIS Shrapnel’s Building and Construction in New Zealand 2010/11 – 2016 report found the decline in non-residential building can be attributed to steep contractions in office and sports stadium-related projects.
However, while the non-residential sector will record a slowdown, the residential sector is expected to register a slight rebound of 5% in 2010/11.

Contraction in dwelling consents
“The residential building sector has experienced four quarters of solid growth,” says report author and BIS Shrapnel senior project manager Adeline Wong.
“However, we are expecting a contraction in dwelling consents over the last two quarters in 2010/11 due to the impact of the earthquake in Christchurch and the Canterbury region in 

September, and lower consumer sentiment amid stalled growth in the economy. But this won’t cause the overall numbers for the residential sector to decline.”
BIS Shrapnel says the alterations and additions sector is holding up the residential rebound, and building activity related to the reconstruction of quake-damaged properties is expected to start to filter through in this quarter.

Looking longer term, BIS Shrapnel says the value of building authorisations is expected to stage a strong rebound, particularly in the second half of 2011/12.
The five-year forecast to 2016 also shows relatively solid building activity which will be underpinned partially by earthquake reconstruction activity and also remediation work on leaky homes and buildings in the North Island.

“Remediation work on leaky buildings and homes is expected to keep alterations and additions activity at record high levels over the next five years, as long as there are no delays from the legislation of the leaky homes bill,” Ms Wong says.

Large build-up in stock deficiency
BIS Shrapnel says new building activity is also expected to pick up over the next three years, supported by a stronger economy and pent-up demand amid tight new housing supply.
“The Auckland region, in particular, will have a large build-up in stock deficiency due to severe under building in the past few years,” Ms Wong says.

Total dwelling consents are forecast to rebound strongly in 2011/12, albeit from a low base. The solid rebound will continue over the following two years, to take dwelling consents to just under 25,000 units — which is still below the peak of 30,000 units per annum over the two years to 2004/05.

While in the near-term the non-residential sector looks weak, a rebound is forecast for 2011/12. “This can be attributed to a recovery in the commercial and industrial building sectors, albeit from a very low base,” Ms Wong says. 

Educational building strong
A strong pick-up in demand for commercial and industrial space, and strengthening economic growth from the second half of calendar year 2011, will underpin a further rebound in building activity over the two years to 2013/14.

During this period the industry as a whole will be supported by alterations and additions activity in retail, educational and industrial building. In particular, educational building will be strong, deriving support from an estimated NZ$1.5 billion bill for repair work at 157 leaky schools.

The infrastructure construction sector over the next five years will continue to be underscored by the Government’s pre-election policies and by its National Infrastructure Plan (NIP) that has identified investment in broadband, electricity transmission and roads as its priorities.

Annual average gross capital formation by the civil engineering sector over the past five years rose by almost 45% during the five-year period to 2005/06. This strong growth is expected to continue over the next five years.

BIS Shrapnel managing director Robert Mellor will give a detailed presentation of the company’s forecasts for New Zealand building and construction activity at the eighth annual Building and Construction Forecasting Workshop at the Stamford Plaza in Auckland on Tuesday, February 22.