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NZ Building Consents - October 2000

Data Flash (New Zealand) NZ Building Consents - October 2000

Key points

The number of new dwelling consents issued increased 2.0% mom in October following a 0.8% mom in September.

Non-residential building consents with a value of $217m were issued in October. The value of non-residential consents issued in the three months to October was 25.7% higher than a year earlier, largely as a result of a high value recorded in August 2000 (related to a single office project).

Reflecting the sharp fall in residential construction activity, the average value of total building consents issued in the three months to October was $548m, 6% lower than a year earlier.

Commentary Building consents data has been particularly volatile in recent months, making it difficult to discern a trend. However, the latest outcome appears consistent with our earlier conclusion that the bottom of the current housing cycle has been reached.

At this stage, however, we see little chance of a strong cyclical rebound in the housing market, notwithstanding evidence of an improvement in consumer sentiment (reflected in both the latest Colmar Brunton and NBR polls, and in the ASB's latest housing market report).

The outlook for housing activity will depend, in part, on net migration trends. The net migration outflow increased in October after falling sharply over the previous two months. As a result, the rate of population growth remains low relative to the average over the past two decades.

Given the current rate of household formation, we assess the current level of dwelling consent issuance - around 19000-20000 annualised - to be broadly sustainable on a medium-term basis. Thus, in the absence of a significant and sustained turnaround in migration flows, the housing market is likely to remain subdued.

As a result, significant wealth effects from house price inflation are unlikely to be a feature of the economic landscape over the foreseeable future. Indeed, given rising CPI inflation, further falls in real house prices seem likely to occur over the coming year, imposing a negative influence on consumer spending. Darren Gibbs, Senior Economist


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