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Brad Olsen: Infometrics Principal Economist on the declining demand for construction · Best of Business

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  Speaker 1: You're listening to a podcast from newstalks'b follow this and
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  Speaker 2: And construction continues to slow. Statz NZ saying new home
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  Speaker 2: consents drop twenty percent in the year to August, with
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  Speaker 2: the number of multi unit homes consented the lowest in
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  Speaker 2: the last three years. Brad Olsen is Infometrics principal Economists,
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  Speaker 2: Good Evening Kelder, So what do you make of these numbers?
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  Speaker 3: Well, look, they're still going down. You still down quite
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  Speaker 3: a bit from a year ago, and the direction is
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  Speaker 3: still pointing firmly in that much softer direction. Although it
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  Speaker 3: has been interesting to see the sort of shift that
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  Speaker 3: is now merging between the likes of your standalone classic
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  Speaker 3: houses and your likes of your townhouses are similar. Standalone
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  Speaker 3: houses had been falling a lot more earlier on in
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  Speaker 3: the process. They now are showing those clearer signs in
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  Speaker 3: a sense of leveling out. Not confident in calling it
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  Speaker 3: too quickly, but there is a lot more evidence. The
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  Speaker 3: likes of your townhouses, of course much bigger part of
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  Speaker 3: construction these days compared to say, five years back. They're
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  Speaker 3: still falling, and I think that's just because effectively, it
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  Speaker 3: takes a bit longer for those those multi unit dwellings
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  Speaker 3: to get fully underway. Long story short, there's still not
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  Speaker 3: a lot of green shoots coming through yet for construction,
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  Speaker 3: despite the fact that those interest rates have started to
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  Speaker 3: pull lower.
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  Speaker 2: Yeah, when we do you expect to see that?
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  Speaker 3: Well, in a sense, I think it could be a
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  Speaker 3: little while. I mean, when we look at the fundamentals,
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  Speaker 3: we know the housing market still hasn't really shifted around
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  Speaker 3: much yet, And from a construction point of view, there's
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  Speaker 3: probably a lot of developers out there going well, I'd
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  Speaker 3: have to pay like twenty percent more to build a
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  Speaker 3: house than a couple of years ago. I'd make, you know,
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  Speaker 3: fourteen fifteen percent less on the house when I eventually
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  Speaker 3: sold it. And interest rates they might be coming down,
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  Speaker 3: but they're coming down from a higher position. So at
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  Speaker 3: the moment, that doesn't sort of stimulate a whole lot
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  Speaker 3: of activity on the sort of buyer side, on people
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  Speaker 3: that might be keen to get in again, a few
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  Speaker 3: more buyers that might be coming back into the market.
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  Speaker 3: But you look at those costs still, jack and you know,
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  Speaker 3: compared to you know, people's incomes. If you're owner occupy
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  Speaker 3: you're a first home buyer, it's still not easy to
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  Speaker 3: get money from the bank. If you're an investor, you're
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  Speaker 3: still looking at housing and going, well, my rents aren't
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  Speaker 3: going to make a huge huge hit in contribution to
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  Speaker 3: my income and to my mortgage repayments. So I think
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  Speaker 3: there's still a little bit of time yet. It's probably
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  Speaker 3: one of the later parts of the economy, the construction
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  Speaker 3: sector that might actually turn around.
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  Speaker 2: Yeah, there's a lag right on both the way up
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  Speaker 2: and the way down when it comes to monetary policy
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  Speaker 2: tightening and loosening, So it is going to take away
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  Speaker 2: while What about the impact of migration, because we've seen
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  Speaker 2: some massive migration numbers over the last few years. Obviously
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  Speaker 2: that is starting to drop pretty significantly, So what will
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  Speaker 2: that mean for demand? Well, this is a big, big shift,
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  Speaker 2: you're right, And I mean the last couple of years
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  Speaker 2: has just been so topsy turvy. Right, You've had some
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  Speaker 2: you know, obviously a plunge an activity through the pandemic,
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  Speaker 2: then you had a big burst up to the high
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  Speaker 2: levels we've ever seen in terms of inward migration on
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  Speaker 2: a net basis, and then in recent times that's been
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  Speaker 2: slowing down a lot quicker than expected. Both fewer people
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  Speaker 2: coming into New Zealand than at those peak levels, but
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  Speaker 2: also a larger number of people who are leaving as well.
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  Speaker 2: So you've still got population growth, it's just slowing back
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  Speaker 2: quite considerably. And I think realistically looking at that, that
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  Speaker 2: says that if you know, you look at the housing market,
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  Speaker 2: you look at the building market the next couple of years,
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  Speaker 2: if you've got population growth which is now slowing, you've
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  Speaker 2: still got those high building costs. You don't have a
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  Speaker 2: huge amount of a burst looking likely to come through
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  Speaker 2: on the house prices front, get to income limits and
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  Speaker 2: similar from the Reserve Bank. I think it is one
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  Speaker 2: of those areas where we're not expecting a huge bounce
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  Speaker 2: at all, and if it does come, it's going to
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  Speaker 2: take a while. The big challenge is that the construction
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  Speaker 2: sector the last couple of years has grown so much
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  Speaker 2: to be able to cater with such a high level
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  Speaker 2: of consents that we had at the peak. We've now
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  Speaker 2: probably got a bigger construction sector in terms of workforce,
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  Speaker 2: then we will have going into the future in terms
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  Speaker 2: of a pipeline for residential work. So if we can
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  Speaker 2: shift those people into infrastructure that might help, but realistically,
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  Speaker 2: like I say, some difficult times still for the construction sector.
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  Speaker 2: Not a huge amount of a turnaround yet. The most
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  Speaker 2: I think we can say is that we might be
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  Speaker 2: starting to find a bottom, but that'll be cold comfort
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  Speaker 2: for many. Yeah. Hey, just looking at the government's priorities
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  Speaker 2: for legislating over the next few months. I mean, you've
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  Speaker 2: got the fast track various other infrastructure policies, including the
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  Speaker 2: funding and financing tools for housing, and obviously the Housing
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  Speaker 2: Minister Chris Bishop is looking to make some pretty significant
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  Speaker 2: inroads here. What role do you think central government policy
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  Speaker 2: might play in speeding up construction.
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  Speaker 3: I think for a lot of the options that the
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  Speaker 3: government has on the table in its latest quarterly Action
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  Speaker 3: Plan are important long term for construction and generally for
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  Speaker 3: New Zealand's economy. You know, some of those changes will
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  Speaker 3: set us up better in the future, but they are
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  Speaker 3: unlikely in my mind, to have an immediate impact. Probably
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  Speaker 3: much more significant is the fact that you've got education
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  Speaker 3: consents across the country. They're running. I think they're the
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  Speaker 3: lowest in about fourteen years on a cost adjustment basis.
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  Speaker 3: If you look at the likes of again, you know,
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  Speaker 3: all the talk around hospitals, and similar recently the talk
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  Speaker 3: around social palsing. Without any of those government public sector
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  Speaker 3: dollars coming into the construction sector, you know, these longer
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  Speaker 3: plans aren't going to make a huge impact. But I
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  Speaker 3: do think as well the previous government quite clearly put
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  Speaker 3: too much money into the construction sector at a time
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  Speaker 3: when there was already a lot of private sector stuff.
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  Speaker 3: That's partly why we got those high levels of cost
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  Speaker 3: escalation and construction. So I understand why the government can't
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  Speaker 3: spend as much, but it does leave us in a
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  Speaker 3: position now where the private sector and the public sector
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  Speaker 3: both aren't spending as much as we might all like
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  Speaker 3: on construction.
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  Speaker 2: Yeah all right, I know we're just over a week out,
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  Speaker 2: but whether you stand at the moment twenty five or
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  Speaker 2: fifty basis points next week.
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  Speaker 3: I'm still sitting on twenty five just because if you
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  Speaker 3: look at what the Reserve Bank has said, and they've
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  Speaker 3: said pretty clearly, we should listen to what they say.
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  Speaker 3: They said, Look, here's the conditions for continued intro straight
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  Speaker 3: declines of a normal pace, and we've had that data
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  Speaker 3: come out pretty normally. In fact, you look at some
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  Speaker 3: of the data the likes of GDP and similar actually
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  Speaker 3: a bit better than the Reserve Bank hope. So I
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  Speaker 3: don't know if there's enough there for them to call fifty.
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  Speaker 3: I wouldn't put it out of my mind for November though, all.
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  Speaker 2: Right, look forward to that. Thanks Brad, appreciate your time.
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  Speaker 2: Brad Olsen from Informetrics. There in a couple of minutes
• 6:30
  Speaker 2: on Newstalks EDB, the man formerly known as Prince Harry
• 6:33
  Speaker 2: is back in London, so will he meet with his family?
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  Speaker 2: We'll take you to the UK next score to seven.
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