Building falls 8pc with jobs at risk

Home building work is down to a six year low, with builders already cutting staff and some economists expecting tens of thousands of workers to be laid off,.

Statistics New Zealand figures out yesterday show the seasonally adjusted volume of residential building work put in place in the September quarter was the lowest since June 2002.

The volume of house building work in the quarter fell 7.9 per cent in the three months and is down 22 per cent compared with the same period last year, confirming the trend in recent building consent figures.

However, non-residential commercial building rose 5.8 per cent, after a dip in the previous six months.

While the downturn in home building was worse than some bank economists predicted, overall the total volume of building work was down 2.1 per cent for the quarter, which was not as dire as expected, with a sharper rebound in commercial work.

The figures pointed to a continued strength in infrastructure projects, such as road building and work related to the upcoming Rugby World Cup in 2011. The new National government has indicated its intention to bring forward some infrastructure projects.

Bank of New Zealand and ASB Bank economists said the figures suggested the economy contracted 0.2 per cent in the September quarter  pointing to a continued shallow recession from the first half of the year.

Goldman Sachs JBWere analyst Shamubeel Eaqub said the outlook for the construction sector was clearly "very weak" and the prospect of job losses was getting worse, with a domestic recession and a worsening global outlook.

The building sector appeared to be over-staffed by about 35,000 workers, more than the 33,000 increase in jobs in the sector during the past five years Mr Eaqub said.

Most recent official figures from Statistics New Zealand showed about 176,000 people in the construction sector in the September quarter, down only slightly from the same period last year, but down sharply from a recent peak of almost 192,000 two years ago.

"Given the construction and housing-related sectors (directly through financial services for example and indirectly through retail sales etc) have been such significant contributors to employment growth in recent years, the potential unwind is a source of risk for the economy," he said.

Registered Master Builders Federation chief executive Warwick Quinn said the building work figures confirmed recent building consent figures showing the lowest of home building since 1992.

The main centres of Auckland, Wellington and Christchurch were the most affected by the building downturn.

Builders were "absolutely laying off staff. There is a lack of forward work and activity is slowing down, they are laying off labourers and contracted builders," Mr Quinn said. However, some builders were able to move to commercial building work.

The house building sector was booming a couple of years ago, with record numbers of consents.

The Reserve Bank pushed up interest rates to cool the market and that had combined with this year's global credit crunch to knock the market.

"It has been a double hit and building has declined very rapidly," Mr Quinn said.

The building sector can handle between 20,000 and 25,000 new homes a year, but in the boom period it went above 35,000 homes.

"The boom and bust is hard to manage," Mr Quinn said, and it was hard to pick how many new homes may be built next year. That would depend on lower interest rates and a return of confidence.

The Bank of New Zealand's latest survey of business showed a rebound in confidence, with just a net 6 per cent of firms expecting things to get worse in the year ahead, compared with a net 40 per cent gloomy at the start of November.

Confidence has improved on the big fall in petrol prices and floating mortgage rates down to about 8 per cent, from 10.5 per cent in October. Short term fixed rates are just under 7 per cent.

The central bank cut official interest rates 1.5 percentage points last Thursday, to 5 per cent.

Rates may need to be cut further, but home owners would also have to be confident that house prices were not going to fall further Mr Quinn said.

Latest figures from QV showed house prices down almost 7 per cent in the past year.

HOUSE OF STRAW

- Home building work put in place in September quarter at a six year low

- Volume of residential building down 7.9 per cent in the three months

- Trend of residential building work down one fifth in the past year

- Non-residential building up 5.8 per cent in September quarter

- More big projects worth more than $10 million each

- Volume of all building fell 2.1 per cent in September quarter

- Value of all building in past year was $13.2 billion, up 0.1 per cent

Source: Statistics NZ

 

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