Consents fall could have been worse

A total of 2,168 new homes were consented in April, bringing the number of new homes consented in the April 2020 year to 37,180, according to Stats NZ.

This was slightly down from the February 2020 year, which produced a 45-year record of 37,882 new homes consented.

But it was nearly 17% lower than in April 2019.

In seasonally adjusted terms, the number of new homes consented fell by 6.5% in April 2020, and that came on the back of a fall of nearly 22% in March 2020.

Given the country was in alert level four lockdown from late March till almost the end of April and that involved the closure of non-essential businesses, including construction sites, the fall is not surprising.

Stats NZ acting construction indicators manager Dave Adair says there is still a large amount of uncertainty around the implications of Covid-19 on the future supply of homes.

“Typically, many homes are built within about a year of gaining consent, but these are unusual times and it will take some time to see if existing consented projects are completed or delayed.”

However, economists have expressed surprise that the fall in consents was not bigger.

Westpac senior economist Satish Ranchhod says it was a very small drop given that the country was in lockdown through most of the month.

“This reflects that processing of consents was able to continue, even though building activity was furloughed.”

He says that prior to lockdown, consent issuance had risen strongly and that has left a large pipeline of building work as the economy opens up again.

“With lockdown conditions being rolled back, we expect to see consent issuance ramping up again next month. There will also be some catch up activity.”

However, businesses and households are nervous about the economic outlook, and conditions in many parts of the economy will be weak for some time, Ranchhod adds.

“Against that backdrop, we expect that the number of new construction projects coming to market or going through the consenting process will ease back over the remainder of this year.

“Given the usual lags between planning and building, we’re likely to see another slowdown in building activity through mid-2021. That will affect both residential and non-residential building.”

ASB senior economist Jane Turner agrees that the number of consents processed held up better than expected, with workers in some regions continuing to process consent applications from home.

However, she expects that heighted economic uncertainty, a weaker housing market and rising unemployment are likely to impact housing construction demand and may see some construction projects cancelled.

“This fall in private sector demand will free up some spare capacity in the construction sector, and later this year may prove to be an opportune time for the government to ramp up its own construction plans for both housing and non-residential building.”

BNZ economists also thought the monthly decline in consents would be significantly more given lockdown conditions and have now toned down the bounce back seen in May.

“In any case, none of this really changes the bigger picture,” they say. “We still expect building consents to trend materially lower over the next couple of years reflecting weak economic conditions and much slower population growth given curtailed migration.”