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Strong population growth fuels building boom

24 May 2018

The latest Auckland Economic Quarterly from the council’s Chief Economist Unit shows that net long-term migration into Auckland was 34,450 for the year ended March 2018. This capped another 12 months of strong population growth, despite an expectation for the trend to decline slightly for the rest of the year.

Senior Economist Harshal Chitale says this growth has fuelled demand for goods and services, including housing and infrastructure. It has also contributed to strong growth in building activity, as evidenced by the increases in non-residential and residential consents.

“The non-residential consented floor area was up 24 per cent for the year ended March 2018 while annual residential building consents have continued their upward trajectory to be at nearly 11,200 consents, which is the highest number since January 2005”, he says. “Attached dwellings made up more than 50 per cent of this number.”

“The building sector is reporting a solid pipeline of construction work and hiring has been buoyant over the quarter despite continued shortages of both skilled and unskilled labour.

“The $28 billion of local and central government investment in transport over the next 10 years, recently outlined in the Auckland Transport Alignment Project, should provide longer-term confidence in the infrastructure construction pipeline,” says Mr Chitale.

However, the growth in consents was still not enough to keep up with the increase in the demand for housing.

Due to population growth over the last 12 months, the housing supply shortfall that already exists, and the slowdown in the number of new house listings, it is not expected that house prices will fall substantially.

According to recent figures from Real Estate Institute of New Zealand, Auckland’s median house price in April 2018 was $850,000 which is almost unchanged since a year ago.
Along with rising household incomes and flat to falling retail interest rates, houses are the most affordable they have been since September 2014

Employment and wages
Auckland’s unemployment rate increased to 4.5% for the March quarter which, although higher than the previous quarter, is still low in a historical context.

Nominal wages in Auckland increased about 4% for the year to March, which translated to a real wage increase of about 3%. The Labour Cost Index, which corrects wage and salary increases for productivity gains and for the changing industrial composition of the economy, was up 1.8% for the same period.

Businesses, particularly in the building sector, are facing difficulties finding both skilled and unskilled labour, according to the NZIER’s QSBO. If and when net migration does start to fall significantly, these shortages could intensify.

Underemployment – defined as those with the desire to work more hours but unable to find those hours – reduced this quarter, which means that spare capacity is being better utilised.


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