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Building Consents - January 2002

Data Flash (NZ) Building Consents - January 2002

Data Flash (New Zealand)

Building Consents - January 2002

Result: The number of dwelling consents fell 0.9% mom. While 12.6% higher than a year earlier, the level of issuance in January is little different from the average over the past decade or so.

Surprise?: Yes. Following last month's sharp fall, a strong rebound had been expected.

Implication for markets: Marginal at this stage. However, if significant growth is not recorded over coming months the RBNZ's November MPS view on the housing market is likely to prove far too optimistic.

Commentary

Over the past two months the buoyant level of activity in the market for existing homes has failed to spill over to building activity with the usual lag. At this stage we remain optimistic that the upward trend in dwellings consents will resume in February, consistent with a range of anecdotal and official indicators pointing to upward momentum in the housing market.

In its November Monetary Policy Statement, the RBNZ forecast annual average growth in residential building activity of 22% for the year to March 2003. If this forecast is to be realised, building consents will need to show very substantial growth over coming months. Even allowing for a cumulative 18% rise in the level of consents over the next 4 months, our current expectation is for building activity to rise a more modest 15% (assisted by a rise in the average value of consents issued).

Going forward, the key issue for monetary policy will be the impact of increasing activity on house prices and construction costs. A strong pick up in house prices would act to raise household's perception of wealth, and thus sustain stronger-than-expected growth in consumer spending. At the margin, this would contribute to a rise in pressures on core inflation. Rising construction costs feed directly into the CPI.

So far the pricing indicators have remained reasonably subdued. This may reflect the fact that despite house sales and building consents having rising well off their lows, they remain nowhere near the historic highs. Indeed, the level of building consents issued in January is little different from the average over the past decade or so.

Key points

The number of new dwelling consents issued decreased 0.9% mom in January following a 7.5% decline in December.

The number of dwelling consents issued in January was 12.6% higher than a year earlier but 0.5% lower than the average level since 1990.

Non-residential building consents with a value of $223m were issued in January. The three-month running total was 6.0% lower than a year earlier.

Darren Gibbs, Senior Economist

This, along with an extensive range of other publications, is available on our web site http://research.gm.db.com


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