Building bound just a blip, say economists

The Reserve Bank was unlikely to be too rattled by figures out yesterday which showed the residential building sector rebounded in December, economists said.

Statistics New Zealand figures showed 2491 new dwelling consents were issued in December, up 3.1 per cent on December 2004 and up 8.5 per cent on November 2005. For 2005, the value of consents for all buildings rose $242 million (2.3 per cent) from 2004. Consents for residential buildings fell $161 million, while consents for non-residential buildings rose $402 million.

Over 2005, there were 26,069 dwelling consents issued, down 17 per cent on 2004. In seasonally adjusted terms, there were 2477 new dwellings approved, up 21 per cent on November. and up 5.6 per cent on December 2004.

Macquarie Bank economist Tim Bowring called the December figures a "blip" and said he expected residential building approvals would continue to show the weakness displayed throughout most of the second half of 2005.

Bowring said the bounce showed the impact of last year's interest rate rises had not yet been fully felt. The real effects were likely to be seen in the first half of this year, but the Reserve Bank would no doubt remain vigilant in its monitoring of housing activity.

"The historical lagged effect that interest rate rises have on housing demand poses the risk of a sustained downturn in the residential housing market," he said.

The Reserve Bank raised the official cash rate three times in 2005 and nine times in all since January 2004, to dampen consumer spending which has been spurred on by the property boom, and rein in inflation.

The Reserve Bank left the OCR unchanged at 7.25 per cent when it met last week and indicated the tightening cycle could be at an end - if domestic demand continued to weaken.

ANZ economists said they did not see the data as suggesting the property market was enjoying a "third wind"."The market will continue to push an easing theme, despite the data suggesting that the rut in economic activity seen in late 2005 has not turned into a hole."

ANZ expected residential investment growth to fall throughout 2006.

"It takes around six to nine months on average between a building consent being issued and the building being completed. Capacity constraints, particularly in the building industry, are likely to make these lags even longer," ANZ said.

Eight out of 16 regions authorised more dwellings in December than in December 2004. Hawkes Bay, up 83 units, recorded the biggest increase, followed by Northland, up 36, and Canterbury, up 34. Nelson, down 43 units and Gisborne, down 26 units, posted the biggest falls. Auckland contributed 39 per cent of the total number of authorisations at 974.

The boom in apartment building has resumed despite signs of flagging prices in many areas. Apartments accounted for 24 per cent of all new dwelling units in December, compared with a 13 per cent average for the preceding 11 months.

There were 603 apartments authorised in December compared with 166 in November and 599 in December 2004.

- NZPA