Building stats show no ease in construction boom

By NZPA

Friday 5th September 2003

New building figures released by Statistics New Zealand (SNZ) today show the construction boom warned of by Reserve Bank Governor Alan Bollard yesterday is not slackening.

The seasonally adjusted value of residential building work during the June quarter was 8.6% higher than the first quarter, according to SNZ figures released today.

Non residential building work was down an adjusted 5.1% from the March quarter and total building work was up an adjusted 3.6%.

June quarter building work was worth a seasonally adjusted $1.7 billion with residential work contributing over $1 billion of that.

SNZ said its trend series, which excludes seasonal and one-time factors, showed that the value of residential building work has been increasing since the first quarter of 2001.

On a trend basis, the value of second quarter residential building work was up 7.2% from the first quarter.

Yesterday, Dr Bollard in his quarterly review of monetary conditions, warned house investors to be wary of a "speculative dynamic" developing in the residential property market.

Dr Bollard said people hoping to get rich on the booming house market could be in for a shock.

He said investors hoping to cash in could be left out of pocket by a "correction" in prices.

House buyers, particularly investors, could be heading for disappointment, he said.

"Some people have expectations about returns from investment in the housing market that they probably won't realise."

House prices are rising at their fastest pace in almost 10 years.

The boom is not confined to Auckland and is particularly prevalent for holiday and waterside properties.

Prices in the year to June rose by 14.2% nationally and by 15.6%in Auckland.

Dr Bollard said property investors "need to be aware that ultimately we could see a correction in prices, or the target yields they are expecting in terms of rental properties simply won't be achieved".

ASB Bank chief economist Anthony Byett said the market was more overvalued than it was in the last boom, in the mid-1990s, in terms of such measures as the ratio of house prices to incomes, household debt to incomes and rental yields.

But Byett doubts Dr Bollard's warning will cut much ice with buyers.

"There is all this talk around of what you could have achieved as capital gains and it seems to have reached that investor frenzy stage, which is risky," he said.

"The market is tight - the number of properties listed for sale is falling - and money is easy to get.

"You could be pretty confident the market will remain active for another six months anyway.

"It is in his interests to talk it down - and I don't doubt he is genuine - but it is not going to have any impact."

Real Estate Institute president Graeme Woodley said he would not disagree with Dr Bollard's warning.

The boost from immigration was likely to weaken over the next year, and it would be "inappropriate" if real estate agents were raising expectations in line with capital gains achieved over the past 12 months.

The rise in property prices was one reason why Dr Bollard did not cut interest rates again, as he has done three time this year, despite the economy cooling significantly and exporters experiencing sharp pain.

Money markets are betting that the governor will start raising rates early next year and that rates will be up a percentage point by this time next year.

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