KEY POINTS:
Goldman Sachs JBWere says tens of thousands of construction jobs are at risk as government statistics show residential building work hitting its lowest level for six years.
Statistics New Zealand said the seasonally adjusted volume of residential building work fell 7.9 per cent in the September quarter and was at the lowest level since June 2002.
Government statistician Geoff Bascand said the trend indicated the volume of residential building work had decreased by over one-fifth in the past year, with the number of consents for new dwellings in October the lowest level since January 1992.
Goldman Sachs JBWere analyst Shamubeel Eaqub said layoffs were expected as the volume of work declined.
"We estimate the sector to be over-staffed by approximately 35,000 persons, which combined with further reductions in work done could result in significant job losses," Eaqub said.
"Potentially we could be talking about more [than 35,000 jobs]. We haven't seen the full extent of the decline in activity yet."
The construction sector employed about 180,000 people, he said.
"We know that up to October consent issuance has been absolutely horrible so the next six months heading into April next year things will probably remain pretty weak. What happens after that is still unknown."
Statistics New Zealand figures show that 20,089 consents were issued for residential homes in the year to October, down from 25,777 in the same period last year.
There had been reductions in mortgage rates but at the same time banks had been tightening credit criteria, and net migration had fallen, he said.
"It's important to keep it in context. There's stuff happening right across the economy, for example the financial sector, for example the retail and wholesale sector are going through very similar kind of adjustments," Eaqub said.
Registered Master Builders Federation chief executive Warwick Quinn said the September quarter data being the lowest for six years was not surprising considering the amount of work that had fallen off. "We are certainly aware that builders are laying off staff and laying off gangs because the work in front of them isn't there to keep them on," Quinn said.
The Reserve Bank and Government had tried to quell the growth in the property market, which had boomed for the best part of seven years, he said.
"But the effect of the global credit crunch and the international economic turmoil has had a second effect so it's almost been hit twice I think and the activity has dropped off considerably as a result of that."
Quinn was getting some confidence from the fact that the latest Quotable Value statistics measuring house prices had shown no decrease on the previous month.
"It appears that people are starting to think again about investing in property but I certainly don't think that we're necessarily out of the woods," Quinn said.
UBS senior economist Robin Clements said the drop in residential building work was less than expected.
Meanwhile, the seasonally adjusted volume of non-residential building work rose 5.8 per cent after falling for the previous two quarters.
The unadjusted value of all building work put in place for the year ending September 30 was $13.2 billion, up 0.1per cent on the previous year - of which residential buildings contributed 60.6 per cent.
The building work data suggested a less negative contribution to third quarter real gross domestic product than UBS had envisaged, Clements said.
"Further out, the building work data doesn't alter the picture as we see it," he said. "Residential building activity is set to be a sizeable drag on domestic economic activity in the current quarter and weakness will also likely spill over into 2009."
UBS did not see the building work data altering the Reserve Bank's outlook.
BUILDING WORK
* 7.9 per cent drop in the volume of residential building work in the September quarter.
* Volume of residential work is the lowest since June 2002.
* 5.8 per cent rise in non-residential work.
* $13.2 billion value of all building work for the year ending September, up 0.1 per cent.
