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Mike Blackburn: construction sector advisor on new home consents dropping to lowest level since 2019 · Best of Business

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  Speaker 2: Back to business. New home consents are at the lowest
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  Speaker 2: there've been since twenty nineteen. According to Stat's New Zealand
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  Speaker 2: And the year to June, there were thirty three thousand,
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  Speaker 2: six hundred and twenty seven new homes consented and that
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  Speaker 2: is down twenty four percent. The number of consents for
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  Speaker 2: multi unit homes, particularly apartments and townhouses down twenty eight
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  Speaker 2: percent over the same period. Christ Church based management consultant
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  Speaker 2: and construction sector advisor Mike Blackburn is on the line
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  Speaker 2: and talks to me.
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  Speaker 3: Now, Hello, Mike, Kody, Andrew, how are you very good?
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  Speaker 2: I am not surprised by this due to the whole
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  Speaker 2: supply costs and inflation scenario and what's been happening with constructions.
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  Speaker 2: But what are the factors that have meant this drop
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  Speaker 2: and consents?
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  Speaker 3: Well, Look, building consent numbers are down right across New
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  Speaker 3: Zealand and have been for probably the last eighteen months
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  Speaker 3: or so. Look, probably the most important thing to remember
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  Speaker 3: is that twenty twenty one and twenty twenty two were
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  Speaker 3: absolutely all time record years for new residential construction in
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  Speaker 3: New Zealand, and so even though building consent numbers are down,
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  Speaker 3: they have come off extraordinarily highs. So what we're seeing
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  Speaker 3: in Auckland, for example, is that building consent numbers a
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  Speaker 3: year on year are actually down by forty six percent,
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  Speaker 3: In Wellington they're down by thirty eight and in christ
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  Speaker 3: Huts they're down by twenty percent. So all the major
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  Speaker 3: regions are sort of feeling the same effects.
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  Speaker 2: There's a fluctuation though, there's a waxing and a waning
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  Speaker 2: of numbers because it depends on the developers freeing up
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  Speaker 2: either greenfields or brownfields and they're actually getting the money
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  Speaker 2: in place.
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  Speaker 3: Look, that's true. You mentioned multi unit developments, and certainly
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  Speaker 3: in Auckland and in Canterbury or certainly in christ Church,
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  Speaker 3: multi unit dwellings have been sort of the predominant type
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  Speaker 3: of new construction that we've seen, certainly accounting for significantly
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  Speaker 3: more than half here in christ Church. For the last
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  Speaker 3: couple of years, it's been close to seventy percent of
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  Speaker 3: all new construction. Now largely that's been driven by the
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  Speaker 3: investor market. Obviously, if we go back to when the
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  Speaker 3: last government changed the tax deductibility rules that drove people
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  Speaker 3: away from existing dwellings older dwellings to new construction, and
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  Speaker 3: so therefore the price point of multi unit construction saw
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  Speaker 3: a significant boom in that as the new tax rules
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  Speaker 3: come in, we'll probably see mum and dad investors perhaps
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  Speaker 3: move away from these newer units to some older units. Certainly,
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  Speaker 3: the cost of construction construction inflation has been very, very
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  Speaker 3: high over the last couple of years. That seems to
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  Speaker 3: have that have waned a little bit, and most merchants
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  Speaker 3: and suppliers that I'm talking to are saying that because
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  Speaker 3: the market is down, competitive pricing is very much at play.
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  Speaker 3: But again, year on year, across all of new seat
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  Speaker 3: in New Zealand, we've seen the cost of construction of
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  Speaker 3: building a new house increased by about nine percent.
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  Speaker 2: Absolutely also the cost of actually getting your consents in
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  Speaker 2: the first place. Funny enough, I actually bumped into a
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  Speaker 2: lawyer today who said I've just done a consent for
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  Speaker 2: a big old department building. And I said, you mean
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  Speaker 2: you've done the application for a consent and he said no,
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  Speaker 2: under COVID fast track legislation, I can actually do the
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  Speaker 2: whole consent. So we have the ability to get stuff going,
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  Speaker 2: but we just need the money in place and the
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  Speaker 2: teap of materials in place.
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  Speaker 3: Well, look, that was one of the things. And I
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  Speaker 3: was listening to what you said right at the start
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  Speaker 3: of your show where we was talking about sort of
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  Speaker 3: the economy and access to finance, and those are certainly
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  Speaker 3: major influencers are on the construction industry as to why
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  Speaker 3: we've seen building consent numbers fall away for builders and developers.
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  Speaker 3: If I go back to twenty twenty one and twenty
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  Speaker 3: twenty two, when our interest rates were low and money
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  Speaker 3: was readily available, you know, buying off the plans even
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  Speaker 3: before a builder had started any sort of construction was
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  Speaker 3: really really commonplace. Today, you'd be there's literally no appetite
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  Speaker 3: for buying off the plans, and so builders and developers
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  Speaker 3: are being forced to fund the development themselves, which is
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  Speaker 3: another reason why we've sort of seen a significant drop
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  Speaker 3: off in that level of construction.
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  Speaker 2: So when will it pick up again? And I know, yeah,
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  Speaker 2: I'm asking for your crystal ball, but yeah, give it
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  Speaker 2: a question.
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  Speaker 3: Well, look, I wrote in my report in May that
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  Speaker 3: I was starting to see some light on the horizon.
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  Speaker 3: Now what you've got to remember is that for most
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  Speaker 3: construction activity, it generally runs between twelve and eighteen months
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  Speaker 3: behind a change in economic activity, and there's always that lag.
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  Speaker 3: So I deal with a lot of land developers, and
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  Speaker 3: one of the things that I'm starting to see is
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  Speaker 3: a lot more interest in what is likely to happen
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  Speaker 3: in the economy, because again, land development takes place again
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  Speaker 3: twelve months, two years, three years before any sort of
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  Speaker 3: residential activity. So I'm starting to see an increase in
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  Speaker 3: an interest in development activity in that market. Already, I
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  Speaker 3: believe that the building consent numbers will remain flat through
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  Speaker 3: till at least the end of the year, but of
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  Speaker 3: course the smart developers are starting to anticipate what that
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  Speaker 3: change in the market is likely to be and will
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  Speaker 3: be starting to gear up their activity. Now.
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  Speaker 2: Any turn in the economy, any dropping the interest rates,
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  Speaker 2: combined with the high immigration, we'll actually go people to go, well, yeah,
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  Speaker 2: there's definitely a market there that wants a house, and
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  Speaker 2: where we go, That's what I'm hoping more.
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  Speaker 3: Look, look, that's absolutely true, and you mentioned immigration. So
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  Speaker 3: if you look at the latest immigration over the last
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  Speaker 3: twelve to eighteen months, we've had an influx of people
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  Speaker 3: of summer in the vicinity of a one hundred and
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  Speaker 3: forty thousand people. Now they're not they're here for medium
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  Speaker 3: to long term, so they're not staying in motels and Airbnb,
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  Speaker 3: and they will all need rental accommodation or ownership accommodation.
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  Speaker 3: So that's the equivalent of another forty five thousand houses
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  Speaker 3: that we need over and above business as usual. So
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  Speaker 3: the next couple of years I see as very very
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  Speaker 3: positive for residential construction right across New Zealand.
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  Speaker 2: Loving that, Loving that, Mike, Thank you so much, Mike
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  Speaker 2: Begburn clash It's based management consultants and construction sector advisor.
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