Building consents flatten, prices rise but construction carries on

The new building consent frenzy is over.

Monday, October 3rd 2022, 10:17AM

by Sally Lindsay

Consents fell by 1.6% in August after rising 4.9% in July and monthly numbers have been effectively flat for a year.

There were 4,547 new dwelling consents issued in August – not much different from the 4,508 consented in August last year.

In the August year, new consents were 50,653, up 8.9% from the year ended August 2021.

There is a rotation away from standalone houses and towards medium density developments, such as apartments and townhouses. Just over 1,900 standalone houses were consented, bringing the yearly total to 23,060, down 8.9% compared to the previous 12 months.

Townhouses and units are gaining in popularity with 1,771 consented in August, with 20,681 consented over the year, up 41.7% compared to the previous 12 months.

Apartment consents are on an even keel with 408 consented in August and 4,096 for the year, compared to 4.094 in the previous 12 months.

That shift in the type of consents being issued has been centred on Auckland where population pressures have been more pronounced, and where planning restrictions have allowed for greater housing intensification, says Satish Ranchhod, Westpac senior economist.

“We expect the shift towards medium density developments will become increasingly widespread.”

He says monthly consents have effectively been tracking sideways for about a year. “While there has been some month-to-month volatility associated with ‘lumpy’ categories, such as retirement villages, consents have failed to rise meaningfully above 4,200 a month for any sustained period.”

While consents are flattening out, costs are still a significant factor. The total value of residential consents for August was $1.912 billion, up 12.9% for the month and alteration work consented in August added another $249 billion, up 26.7% on the same month last year. This totalled $2.161 billion, up 14.3% on the previous year.

Ranchhod says, however, the construction sector is facing some challenging conditions. “Interest rates are pushing higher, and house prices are falling. At the same time, building costs continue to rise, with difficulties sourcing labour a significant constraint.

“Against that backdrop, buyers are increasingly hesitant to make purchases and developers are nervous about bringing new projects to market. The related pressure on margins is likely to be a key reason for the low levels of confidence in the building sector.”

He says the tougher financial conditions will see consent issuance trending down, but even when it does eventually ease back, the slowdown in actual construction will be gradual.

“Earlier shortages of materials and ongoing shortages of labour mean building activity has struggled to keep pace with the rise in consents over the past year.

“That means there is still a large pipeline of planned projects. And while the scope for further significant increases in building activity looks limited, the level of construction activity is likely to remain firm into the new year.”

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