January 17, 2022

Are we running into a house building problem?

The evidence suggests that building activity is currently managing to keep up with the skyrocketing building consent numbers, but for how long?

In this article we will look at the latest trends occurring in the “Residential consents and residential work put in place” time series released by Statistics New Zealand.

Residential consents are issued by councils in advance of new building taking place and can, therefore, be used as a barometer of potential future development. The residential work put in place time series is a measure of building that has been completed and is a measure of actual building activity.

Examining these two measure together we will be able to see if residential building activity is keeping pace with residential consents, or if building supply shortages and labour supply issues are causing building activity to fall behind.

We will firstly look at what is happening with residential consents, both nationally and in the four main regions (Auckland, Waikato, Wellington, and Canterbury). Then we will look at residential building work put in place, again both nationally and in the four main regions, before examining how the two series are tracking against each other.

As is shown in the residential consents annual graph for the year to September 2021, with just over 47,330 consents issued across the year, the number of residential building consents has been climbing virtually continually since 2011. In fact we need to go all the way back to 1991 before we see the number of building consents reach this high. The figure for the year to September 2021 was a sharp increase in the number of consents issued just a year previously, with 37,730 issued in the year to September 2020.

Looking back across the last 10 years, we can see that residential building consents have been increasing across the period, with consents for the year to September 2011 being a low 13,500, or less than a third of the consents issues in the last year. The rapid increase in new residential consents over the last decade shows that there is an intent to build more residential building.

Statistics New Zealand

But is the national trend repeated at a regional level, and is the growth repeated in the main regions? As shown in the regional residential building consents graph, the growth in building consents in Auckland has seen the largest increase across the last decade. Auckland has seen annual consents grow from 3,480 in September 2011, to 19,890 in the year to September 2021. In total in the last year, Auckland residential consents have accounted for 42 percent of total national building consents.

Due to the Earthquakes in 2011 and 2012, residential building consents in Canterbury hit a peak of 7,300 for the year in December 2014, before falling away and then resurging in the last few years. In the last 12 months, residential building consents in Canterbury have again surpassed 7,300. For the other two main regions, Waikato and Wellington, we can see a much more gradual increase in residential building consents across the decade. Waikato grew from 1,650 for the year to September 2011, to 4,970 in the year to September 2021, while Wellington grew from 1,130 for the year to September 2011, to 3,460 in the year to September 2021.

Statistics New Zealand

While the main four regions around New Zealand have seen the number of residential building consents double across the last 10 years, only in Auckland has that grown by more, with consents in September 2021, almost six time those in September 2011. If Auckland residential building consents had grown in line with other regions, we would be looking at around 9,000 fewer consents being issued in the last 12 months.

But has building activity kept up with consents?

By contrast, building activity is measured by Statistics NZ in terms of the dollar value of buildings work completed. To determine the change in volume of building work, Statistics NZ have adjusted the value of building work to 1999 dollars, to eliminate the effects of price changes (inflation), so that the time series only shows changes in the volume of building work. On this basis, apart from the small dip in the year to June 2020 (caused by the response to COVID-19), we can see a strong growth in the volume of the building work put in place each year.

Overall between the year to September 2011 and the year to September 2021, the volume of building work in terms of 1999 dollars, increased by 130 percent. However, this means that real building activity increased at a slower pace than residential consents, which increased by 250 percent across the same decade.

Overall this indicates that building activity may not be keeping pace with new consents. But given that most of the growth in consents has occurred in the last few years, and that there is a lag between consents being granted and building work taking place, we may yet see building activity continue to grow as the rise in building consents flows into building activity. However, anecdotal evidence suggests that we may actually see building activity struggle to continue to grow over the next year or two to match building consent growth.

Statistics New Zealand

Analysis of the change in building activity at a regional level is hampered by two factors. The first is that the data is only available from December 2014, limiting the length of the time series. The second is that the building activity data at regional level is only in nominal value of building work, rather than in set year-dollar value, as is the national data. This means that we have both volume and price changes affecting the change in building activity.

So given we are examining change over time, we have deflated the regional building activity time series to try and remove the effects of price changes since 2014. This means we can examine the volume changes which have occurred in the four main regions.

Statistics New Zealand

The regional building activity graph shows that Auckland, Waikato and Wellington regions, since the December 2014 quarter, the volume of building activity has been increasing, while the volume of building activity in the Canterbury region has been in decline (going from $594 million in December 2014 to $309 million in June 2020), though activity has been increasing again in the last year. In total, in Auckland building activity has gone from $640 million in the December 2014 quarter to $1,217 million in the September 2021 quarter, while for the Wellington region the value of building activity has gone from $123 million to $251 million. For the Waikato region the value of building activity has gone from $181 million to $396 million.

What we can glean from this is that, while building activity across the country has been increasing over the last seven years, the percentage growth in volume has been much lower for building activity compared to building consents. With recent news stories highlighting capacity and supply issues starting to affect the building industry, the question is whether building activity will increase to keep up with the increase in consents, or whether consents will be forced to decline to match a lower level of building activity?