Signs of life are finally starting to show through in the New Zealand construction industry as residential building approvals rise and approval for the new Middlemore Hospital in Auckland provides a boost in non-residential construction.
Driving the improvement is housing.
Excluding apartments, figures from Statistics New Zealand indicate that on a seasonally adjusted basis, the value of new home approvals increased by 6.5 per cent in the month of July. When apartments are added in, the size of the increase grows to 13 per cent (apartments are often excluded from underlying trend analysis in residential approvals because of their volatile nature on a month to month basis).
Also, the approval of the new hospital (NZ$105 million) has provided a significant boost to the non-residential sector, where the value of approvals was up 17 per cent from July last year.
The improvement in approvals is important because approval data is widely considered a good indicator of industry prospects twelve months in advance.
Upon release of the data on August 30, Statistics New Zealand Industry and Labour Statistics Manager Kathy Connolly delivered an upbeat assessment of industry prospects, especially with regard to residential construction.
“The latest increase, excluding apartments, is enough to confirm a positive swing in the longer-term trend” Ms. Connolly said, “This now indicates that February was the low point in the number of homes being approved”.
“The picture is similar when apartments are included, but one more month of strong data will be required to confirm that these numbers have also turned”.
Earthquake related activity is having some impact. In July, the value of authorisations that related to Canterbury earthquake reconstruction amounted to $NZ32 million, roughly 4.2 per cent of the total.
To be sure, the news is not all positive. Whilst residential approvals rose on a seasonally adjusted basis last month when compared to June, the value of residential approvals was still down by 14 per cent when compared with July last year. On an overall basis, even with the effect of the new hospital, the total value of consents for all building types in the country is still down by 2 per cent from a year ago.
Still, the strong showing the residential sector in July when compared with June does at least provide a signal that things are finally moving in the right direction.
Housing and health lead the way: The housing and healthcare sectors appear likely to lead any turnaround in conditions.
As mentioned above, whilst the value of approvals in residential construction is down on a year ago, trends over recent months indicate that conditions in the sector are turning for the better.
In the non-residential sector, in the twelve months to July (see chart below):
• Thanks to the approval of Middlemore, healthcare is the standout sector, with the value of approvals for hospitals up almost six times from previous years.
• Retail is holding up well, with the value of approvals down a shade from last year but almost double the value from the year before.
• In commercial, the level of new work coming in on office construction has stabilised, but is well down on that experienced two years ago.
• The value of activity on social infrastructure (sport and landscape) is dropping back to normal levels as work on Rugby World Cup projects winds to a close.
• Though approval levels on factories and warehouses are down from last year, conditions in the industrial construction sector are holding up reasonably well compared with two years ago.