Hostile factors put new home starts on hold

The recovery in home building is stalling, with the annual number of consented new homes at about 16,400, well down from the long-run average of about 23,000.

Buyers remain nervous about rising interest rates, the coming rise in goods and services tax in October, changes to property depreciation rules in the Budget and a sluggish wider market, the Master Builders' Federation says.

House building consents fell more than 5 per cent in July, official figures show, more than outweighing a small rise in June, but apartment consents rose in the month to more than 200, the best level for a year.

When the volatile apartment category was included, the number of new housing units authorised rose 3.1 per cent in July, following a 3.3 per cent rise in June 2010, Statistics New Zealand said.

More than half the new apartments were retirement flats. About 75 of the new apartments consented in July were for the Bay of Plenty alone.

While the monthly apartment consent number was strong, it masked a massive slump in apartment building in the past five years, down from almost 5000 in the year to July 2005, to just 931 in the latest July year.

Overall house consents were up in Bay of Plenty, Auckland, Canterbury and Waikato in July compared with the same month last year. In the Wellington region, there were 119 home consents in July, up from 94 in the same month last year.

There has been a pickup from a national slump in home building from a year ago, but the recovery has stalled at a low plateau.

Registered Master Builders' Federation chief executive Warwick Quinn said projections earlier in the year by some commentators that there would be 20,000 new homes built this year were now "impossible to achieve".

"The new build market has hit a plateau over the last few months and it looks like consent numbers will remain there in the foreseeable future," he said.

TD Securities' Annette Beacher said annual house consents remained well below average. If it was not for the big drop in net migration to New Zealand, there would be serious questions about "chronic under-building in New Zealand" she said.

ANZ Bank economist Mark Smith said at best there would be a moderate increase in residential building for the rest of 2010, but a material pickup was not expected till 2011. The monthly home consent figures were weaker than ANZ expected, with little evidence of people trying to beat the rise in GST in October.

Home building was being held back by the higher cost of new homes, a large supply of existing homes on the market, households saving more, low income growth and a slowdown in migration, he said.

The outlook for non-residential building was bleak, Quinn said, with the value of consents down 21 per cent or $78 million in July, compared with the same month last year.

Commercial construction work has been falling steadily since the middle of last year, after being buoyed by new sports stadiums and the like, but that spending had come to an end.

The Institute of Economic Research said yesterday that there could be 20,000 jobs at risk in non-residential building, if the market did not improve.

- © Fairfax NZ News