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The economy and construction environment in 2020

What is the current economic and construction situation in New Zealand? Greg Durkin, GM – Education and Stakeholder Engagement at BCITO shares some thoughts…

“New Zealand’s economic prospects for 2020 have stabilised over the last couple of months. Both business and consumer confidence have improved, although it is not yet clear whether this lift will be sustained. Wage growth is above 4.0%pa for the first time in a decade, reflecting bigger minimum wage increases and sizable public sector pay settlements. The housing market is showing signs of picking up in response to mortgage rate cuts and the relaxation of loan-to-value restrictions earlier this year. The government has also announced increased spending on infrastructure to try and boost growth over the next couple of years. The more stable economic outlook enabled the Reserve Bank to keep the official cash rate at 1% in November. Nevertheless, there are persistent concerns about the global economic slowdown, and New Zealand exporters remain vulnerable to a potential decline in commodity prices.

In construction, residential consent numbers reached a new 45-year high in October of 36,926pa. Auckland and Wellington have been key drivers of recent growth, but activity has been increasing in almost every region across the country. Attached-dwelling consents have been particularly strong, while standalone house consents are above 22,000pa for the first time since 2004. Although residential consent numbers may be close to their peak, capacity pressures in the industry and the increased share of multi-unit dwellings will lead to work put in place holding at a high level for a more prolonged period. No significant drop-off in activity is expected until 2022/23.

Private sector non-residential building consents continue to ease, in contrast to public sector consents, which have prevented a decline in total non-residential consents to date. Despite work put in place in the September quarter being up 13% from a year earlier, capacity pressures remain a factor limiting growth in activity. Retail, storage, and farm building activity are likely to be dragged lower over the next one to two years as higher labour costs, tighter credit conditions, and regulatory changes negatively affect demand for space and willingness to invest. Construction in Canterbury continues to come under downward pressure, while there are increasing signs that an oversupply of retail and office space and accommodation is emerging in Auckland.”

‘The content in this piece was adapted from Infometrics’