One smart way that we can make the best of a recession is to put in place infrastructure that will help us fare better in the next one. Non-residential work put in place, and consents issued, suggest that this is occurring at least to some degree. There are other worrying comments coming from the Reserve Bank, however.

With the CPI at its lowest point in five years, the RB is already talking up an old theme: house price inflation. We quote: "A clear risk over the medium term is that households resume their 'borrow and spend' habits ... This could be triggered by renewed moderate house price inflation, and needs to be avoided."

They are quite right that households should not fall into old habits of spending with abandon, but the worrying issue for us, as it was two years ago, is a lingering fascination with house prices. House prices, on their own, are not the concern of the RB. Overall inflation, of which housing is a component, is.

So, what do the latest numbers tell us about housing and construction? The value of building work put in place gives us an idea of the current strength of the construction industry, while consents granted give us an idea of how the industry is likely to perform in future.

The value of new dwellings put in place continues to fall sharply, now down 24% since the highs of the March 2008 year. But the encouraging story is continued strength in non-residential construction. Values are up 5.2% since the March 2008 year. This suggests that infrastructure is getting built, with or without leadership from central government. Leading the charge is growth in the unhelpfully named Miscellaneous Buildings category, which includes social, cultural, religious, recreational, storage, and farm buildings. There has also been strong growth in the value of educational buildings put in place.

Looking to the future, we consider building consents granted. The story here is much the same as for value of building work put in place. While the volume of consents for new dwellings continues to plummet, the volume of non-residential consents is holding up relatively well.

Looking at trends in house prices, the overall falls in prices of 30% forecast by some commentators just 15 months ago (see here) are looking very unlikely, as suggested by BERL eight months ago in our November edition of Monthly Monitor.

Prices have stabilized, and indeed, shown some signs of recovery, over the last several months. At their peak, prices were 7% off the heights of the December 2007 quarter, according to REINZ figures. The number of days to sell has also fallen in recent months, and is now at the lowest since the January 2008 quarter.

It is this increased stability that has caused “house price inflation” to creep back into the RB’s vocabulary. We hope that sense prevails, and the projected longer-term price increases for all items in the CPI basket are taken into account when making OCR decisions, and not just the politically sensitive one of house prices.