Building towards a recovery

By ANNE GIBSON

New Zealand's booming economy is expected to generate at least $26.8 billion worth of residential and commercial building over the next four years, says a study by Australian economic analysts BIS Shrapnel.

Senior consultant Adeline Wong says low mortgage interest rates and migration gains have set the stage for a sustained building recovery in New Zealand.

She expects that up to March 2005, the value of building work each year will be $6.7 billion on average, well up on the 1999/2000 peak of $6.4 billion.

"New Zealand's building and construction sector is set for four years' strong growth, with solid contributions from most sectors and possibly leading to a building boom in 2004/2005," she says.

Because of the improving economy, rising housing demand, a strengthening retail trade and more tourists, she predicts a lot more houses, shops, factories and warehouses will be built.

More than 24,000 new dwellings would be approved in 2004/05.

The study also examines prospects for non-residential building.

It says the 7 per cent rise in building approvals in the past financial year can be attributed to office building, as well as social, cultural, religious and farming sectors.

"But the rebound is not sustainable, and the value of building authorisations is expected to decline by 4 per cent in 2001/02, mainly due to an 11 per cent fall in non-residential building alterations and additions.

"The sector will begin to improve in 2002/03 with a 5 per cent gain." Overall growth for non-residential buildings is expected to remain modest over the three years to 2005. The value of buildings approved would reach $2.6 billion in 2004/05, or 23 per cent below the 1987/88 peak of $3.4 billion.

Hotel building activity would increase - spurred by more tourists - but would be well below the record level of the mid-90s boom.

The strengthening retail trade would result in strong building activity, boosted by the development of regional shopping centres and Westfield New Zealand's $1 billion expansion programme.

Office construction would lag behind other sectors.

The study forecasts a 28 per cent decline for this financial year and moderate gains after that, mainly because offices are being refurbished.

Storage and factory building would be strong during the four-year period because of the improved economy.

Factory construction would benefit from more investment.

The amount of building work in the health sector would increase, boosted by new hospitals in Auckland and Invercargill and the re-development of North Shore Hospital.

Educational building would benefit from the five-year roll growth programme introduced in 2000.

Statistics New Zealand confirms there has been an increase in residential building.

It says Auckland building consents in November were the highest monthly total for two years.

The trend to build more houses became clear a year ago.

"The total value of consents issued for non-residential buildings in October last year was $291 million. This is the second highest value ever recorded," Statistics NZ says.

The highest value was in April 1998 at $312.7 million.

The largest materials and construction group in New Zealand, the listed Fletcher Building, is picked to perform well over coming months because of the sector's boom.

A Business Herald survey of brokers showed that the company was a top choice to do well this year on the stock market.

Fletcher Residential builds about 500 houses a year and is the country's largest residential builder.

Its general manager, David Halsey, says he first noticed the pickup between nine and 12 months ago.

Although there are no signs of activity slowing, he is sceptical about the predictions.

"There are so many intangibles in the building industry that it only takes one to go wrong."

"We are feeling the boom, but people who say they know what's going to happen really don't know at all.

"How long this is going to last, I don't know."

Most of Fletcher Residential's new homes are in Auckland.

It specialises in houses with a finished value of between $200,000 and $500,000.

The company is the umbrella group for 10 house builders, including Dempsey Morton, Spaceline, Aston Marsh, Fletcher Homes, New Zealand Homes and Winstone Home Builders.

BIS Shrapnel

Statistics New Zealand

Fletcher Construction