Cities need higher build volumes or housing market will 'get worse before it gets better'

Satish Ranchhod says the slow pace of new buildings means things in the Auckland housing market are going to get worse ...

Satish Ranchhod says the slow pace of new buildings means things in the Auckland housing market are going to get worse before they get better.

With a decline in building volume of building work over the March quarter, the Auckland housing market is going to get worse before it gets better a senior economist said.

Westpac senior economist Satish​ Ranchhod estimated in a Home Truths publication that Auckland has 35,000 too few homes, and would need to build about 11,000 per year over the next decade to meet demand. 

Wellington had a less pronounced shortage of about 3000 homes and needed to build about 1500 homes a year to keep up with population pressures. 

The rate of residential building volumes are increasing, but not at the rate they need to be.
ANDREW WINNING/REUTERS

The rate of residential building volumes are increasing, but not at the rate they need to be.

The seasonally adjusted value for non-residential construction fell 7.2 per cent, compared to the December quarter - while residential building work decreased 0.8 per cent, Statistics New Zealand said. 

"We are seeing residential construction starting to increase but it is quite gradual, certainly in Auckland building levels remain below what's necessary for the strong population growth," Ranchhod said.

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Commercial building's tendancy to be "lumpier" makes it a volatile sector on a quarter-to-quarter basis.
ROSS GIBLIN/FAIRFAX NZ

Commercial building's tendancy to be "lumpier" makes it a volatile sector on a quarter-to-quarter basis.

He expected building volume to rise over the rest of the year, but said that pick up was going to be gradual.

"The industry is already experiencing capacity constraints and that is forcing costs upwards," Ranchhod said.

Auckland and Canterbury had the highest value of building work so far this year, with $1.8 billion and $1b respectively. 

Overall building volume fell 3.5 per cent, following a 1.3 per cent rise in the December quarter, according to a recent Statistics NZ report.

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Senior manager Jason Attewell said a decrease in commercial building work over the last quarter caused the overall decrease in value of 2.2 per cent but said building work had been at historically high levels since late 2015.

"In Auckland, the value of non-residential building work decreased a seasonally adjusted 17 per cent, following a 15 per cent rise in the December 2016 quarter," Attewell said.

Attewell said over half of all building work in Auckland over the quarter was new homes, which cost almost $1b. 

Ranchhod​ said the tight housing marketin Auckland was going to get worse before it got better. 

He said the quarterly downturn was likely to be a correction following the sharp upwards movement of the December quarter.

"The March figures did show an unexpected decline, but we think that's temporary and a lot of it was concentrated in commercial building which does tend to be lumpy on a quarter-to-quarter basis."

Ranchhod said poor weather in March, and good weather in the December quarter could have also played a role in the contrasting results. 

LT McGuinness contracts director Dan McGuinness said capacity was the main issue. 

"Most of the commercial builders in Wellington are busy at the moment, no one seems to be short of work."

McGuinness said he had not noticed a difference quarter-to-quarter, but part of the downturn could be from the quieter summer months. 

"Lots of jobs finish going out to Christmas and January's a pretty slow month just because people are away." 

The post-earthquake market has been busy for Wellington commercial builders, McGuinness said. 

"There's quite a lot in the pipeline coming up."

 - Stuff

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