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Building Consents - May 2002

Data Flash (New Zealand)

Commentary

The sharp fall in the number of dwelling consents in May was to be expected after a very strong rise in April. As the chart above illustrates, the key driver of recent volatility in total consents issued has been apartment consents. Consents for single unit dwellings have followed a smoother and more gradual upward trend and, indeed, rose further in May.

Given the usual lagged relationship between existing house sales and new construction, we think that dwelling consents have a little further to rise over coming months. However, we expect that dwelling consent issuance will peak by the end of Q3. We estimate that the number of house sales declined 1.8% mom (s.a.) in May, following a 1.4% mom rise in April. Cumulative growth of 39% had been recorded over the previous six-month period. We think that activity in the existing housing market is close to peaking, assisted by actual and perspective rises in interest rates, an expected easing in the net migrant inflow, and natural cyclical factors.

Today's building data does not alter our view that the RBNZ will most likely hike the OCR by a further 25bps at both of the next two meetings (3 July and 14 August), taking the OCR to a broadly neutral 6%. However, for reasons that we have discussed at length elsewhere, we think that there is a significant chance that the RBNZ decides to leave rates unchanged next week, with very recent developments in global economic and financial indicators, especially in the US, suggesting that, the risk of `no move' has increased beyond the 25% chance that we have attributed previously.

Key points

The total number of new dwelling consents issued declined 5.9% mom in May following a 9.7% rise in April. The decline was in line with our expectations. The number of dwelling consents issued was 24.4% higher than a year earlier and 11.5% higher than the average level since 1990.

The sharp decline was driven by a downward correction in consents for apartments from April's elevated level. Excluding apartments, the number of dwelling consents issued actually increased 6.1% mom in May and was 26.5% higher than a year earlier.

Non-residential building consents with a value of $244m were issued in May. The three-month running total was 9.4% lower than a year earlier. Non-residential construction activity over the past three months is running at lower levels than has been typical over the past year.

The total value of all building consents issued ($745m) was above our expectations, reflecting a slightly stronger than expected rise in the average value of dwelling consents issued and a stronger than factored outcome for non-residential consents.

Ends


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