Building consents for houses rise 11pc

A big jump in house-building data has given hope for an end to the residential construction downturn.

But it has also prompted economists to predict interest rate hikes earlier rather than later next year.

Statistics NZ said yesterday that new housing permits were up 11 per cent in October compared with September. When apartments were included, a 12 per cent rise was recorded.

This brings the number of residential consents to its highest level since June last year.

Goldman Sachs JBWere's Bernard Doyle said that if these numbers continued, New Zealand would be building 16,764 houses a year.

That would be a big rise on the 12,311 houses now being built annually.

"This is a marked step higher in consent activity and was not particularly skewed by apartment issuance," Mr Doyle said.

ASB Bank spokesman Chris Tennent-Brown said the sector appeared to have turned a corner.

"The recovery in residential construction continues to lag behind the recovery in housing demand, but the recent increase in house prices should also help stimulate new construction," he said.

Mr Doyle said house-building would be crucial for the economy next year. "Low interest rates, house sales activity, positive net migration and construction sector business sentiment all point to further upside," he said, predicting 18,000 house would be built next year.

Mr Tennent-Brown said the house-building sector was steadily lifting.

UBS senior economist Robin Clements said the level of dwelling consents was still about 40 per cent below the high point in mid-2007. But an impressive percentage lift in recent months might mark a turning point.

"Over the last four months, total dwelling consents have increased 26.9 per cent, while the ex-apartment series is up 33.1 per cent," he said. This is giving him confidence of interest rate rises next year.

"We see the surge in dwelling consents as adding to the likelihood that the Reserve Bank will start lifting the official cash rate prior to their previously stated second half of 2010," Mr Clements said yesterday.

Mr Tennent-Brown also predicted earlier interest rate hikes.

"With the domestic economic outlook improving, we believe the tightness in the housing market will test the Reserve Bank's patience. We continue to expect the first hike will be in April," he predicted.

Philip King, Fletcher Building's investor relations general manager, said any recovery helped a number of the company's businesses including PlaceMakers, Firth concrete, Diamond and AHI roofing, Humes pipes, Winstone Wallboards, Laminex and Tasman Insulation.

"This would help to offset weaker demand in commercial construction activity, excluding government infrastructure projects. Consents are a leading indicator so we would expect to see the benefits flow in the ensuing three to six months," he said.

Master Builders' chief executive Warwick Quinn cautiously welcomed the turnaround.

"The trend continues to head in the right direction but it has to be remembered that the increase is off a very low base and there is still some way to go before we are building at sustainable levels. We need to be building in the order of 20,000 to 22,000 new homes a year to meet demand and our current numbers are around 15,000 to 16,000 houses," he said.

Statistics NZ said permits were issued for non-residential work worth $329 million in October, down 5.6 per cent annually but Mr Doyle said this sector was still at respectable levels.

The sector would suffer but at relatively mild levels, he predicted. Mr Tennent-Brown said work had been comparatively steady during the last 18 months.

Statistics NZ said the value of housing consents at $481 million was 59 per cent of all building consents issued in October, comparing with a monthly average of 52 per cent for the previous 12 months.

The largest value contribution to the non-residential consents was from the social, cultural, and religious buildings category which was boosted by a number of sports facilities, it said.

RESIDENTIAL CONSTRUCTION PERMITS

2004 - 25,386
2005 - 22,070
2006 - 22,740
2007 - 23,296
2008 - 17,753
2009 - 12,311

Source: Statistics NZ, year to October