Economy Hub: Construction boom still driving Auckland growth

Despite the failure of a prominent construction company, Auckland's economic growth remains underpinned by an historic building boom, says council chief economist David Norman.

Construction business Arrow International went into voluntary administration on February 28, after a contractual dispute left it with insufficient cashflow to meet operating costs.

House prices have also been flat for over a year suggesting that the boom times for the property sector may be over.

Auckland was still experiencing "moderate and reasonable growth," Norman said.

"We've come out of a time when we had exceptional, up to five per cent, annual GDP growth," he said. "We are now more in the high twos to early threes."

People did need to adjust to the change of pace but there was no reason to be downbeat about Auckland which was still growing solidly across a number of sectors.

Norman's latest quarterly economic report points to a strong retail trade growth (four per cent year on year) and visitor numbers recovery after a short term dip.

In contrast to the flat residential housing market the building sector - both commercial and residential - continued to boom at record levels, he said.

Buildings consented was up 25 per cent in the past year.

"That's quite unbelievable from the heights that we are already at. If you are only building 2000 houses a year to go up 25 per cent is no big shake. But when you are already at 11 or 12,000, to go up another 25 is quite spectacular."

Then there was commercial property, which had seen a 42 per cent increase in consented floor space in the past year.

The failure of Arrow International was worrying, Norman said.

But while it might seem strange to see a failure during boom times, the rapidly pace sometimes created challenges with prices moving around and cashflow posing problems.

Meanwhile houses prices in Auckland had been flat for about 21 months and were likely to remain so for a while, possibly even falling by another per cent or so, he said.

But Norman did not foresee a Sydney style slump (where prices are now down by more than 10 per cent).