Building levels predicted to bounce back

Residential building levels will fall 26 per cent this year but will bounce back from the decline early next year, according to forecaster BIS Shrapnel.

The Australian forecaster predicts easing interest rate policy and continued low unemployment, which it says will enable the house building sector to recover from a temporary slump quite quickly.

House building hit a peak in 2003-04 but would be down 26 per cent in the March 2006 year, BIS said. The downturn was already gathering momentum, particularly in Auckland with its potential for oversupply in its inner-city apartment sector. Falling home affordability, rising interest rates and declining net migration numbers combined to weaken the housing sector.

Around half all the fixed-term mortgages were due to be renewed in the middle of this year, at the very same time economic growth was expected to slow, BIS noted.

But New Zealanders' appetite for shops would bolster one construction sector. Retail building levels would remain "relatively solid", supported by bulky goods projects, redevelopment of strip shop buildings and extension of regional shopping centres to include entertainment facilities.

Sydney-based BIS is predicting a more modest downturn for non-residential building, picked to decline 9 per cent this year but then to fall by a further 14 per cent next year before rebounding in the 2008-09 period.

Far fewer offices and factories would be built and this segment would suffer the sharpest decline, BIS said.

"These sectors will be hit hard by slowing business investment as companies struggle with lower profit margins and put expansion plans on hold," BIS said.

Fletcher Building has forecast a decline in residential dwelling demand.