Building activity falls short of expectations in June quarter

Wednesday 5th September 2018

The volume of total building work in the June quarter fell short of expectations and a series of constraints hitting the construction sector may mean future increases are gradual.

The seasonally adjusted volume of total building activity, which excludes the effects of higher construction costs and typical seasonal patterns, rose 0.8 percent in the three months ended June 30, with non-residential building work expanding 1.2 percent and residential building work increasing 0.5 percent, Statistics New Zealand figures show. That fell short of the 2.9 percent tipped by seven economists polled by Bloomberg.

Westpac Banking Corp senior economist Michael Gordon said it was "not a big miss, given how much this survey can jump about," and noted timing can be an issue, especially for commercial projects.

A recent increase in Auckland building consents was driven by apartments and "the timing of when the work is actually done tends to be lumpier and slower than it would be for stand-alone houses," he said. Auckland residential building consents jumped 28 percent in the year to the end of July to 12,845 and of which just half were stand-alone houses.

Stats NZ said the value of total building work rose 1.8 percent in the quarter after a 0.1 percent increase in March. Of that, the value of non-residential work rose 2.5 percent in the quarter after falling 0.4 percent in the prior quarter. The value of residential work increased 1.4 percent following a 0.3 percent gain in March.

Gordon said while the level of work remains high, "we are increasingly seeing constraints on future growth with issues around capacity constraints, access to finance, rising costs, all weighing on the potential for growth from here".

"We are assuming the pace of growth will continue to be gradual," he said.

Escalating labour and building product costs have made it harder for commercial construction companies, especially in vertical buildings. Fixed price contracts, leaving construction firms carrying the risk, prompted Fletcher Building to exit the market for now after taking on several unprofitable projects, while other firms buckled under the weight, such as Ebert Construction.

The value of construction work on office, administration and public transport fell 3 percent to $375 million in the June quarter from a year earlier, bucking a 9 percent increase across non-residential activity to $1.96 billion.

Of that, farm building construction work jumped 28 percent to $104 million, factories and industrial building work lifted 17 percent to $209 million and work on shops, restaurants and bars rose 30 percent to $261 million. Some $202 million of work was carried on hotels, motels, boarding houses and prisons, up 40 percent on the year.

The actual value of all building work rose 8.1 percent to $5.57 billion in the three months ended June 30 from a year earlier, with the value of residential work up 7.6 percent to $3.62 billion.

(BusinessDesk)

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