Fixing New Zealand’s housing affordability crisis was one of Labour’s key policy goals going into the last two elections. But KiwiBuild has been conspicuously absent from the government’s vocabulary in recent months, and yesterday’s Budget was no different. The government might not have given up trying to improve housing affordability, but it seems to have realised that KiwiBuild is not the answer to the problem.
Despite increasing storm clouds and general concern about the New Zealand economy’s prospects, Infometrics’ latest economic forecasts show GDP growth holding up well throughout the next year. The economic consultancy predicts 3.1% growth in the year to June 2020. A recent resurgence in residential building consents, particularly in Auckland, is pivotal to that outcome.
New Zealand is at the mercy of international economic trends more than at any time since 2011, according to Infometrics’ latest economic forecasts. On the domestic front, net migration is slowing, the housing market has softened, and the tight labour market means that capacity pressures are inhibiting further growth.
New Zealand’s domestic economy remains in a similar position to where it was 12 months ago: prospects of middling growth, somewhat hampered by capacity constraints and a tight labour market, and with some of the most significant potential shifts being driven by government policy and rule changes. In contrast to this largely unchanged domestic picture, many question marks have appeared during the last year over the international economic environment.
Infometrics’ new estimates of regional GDP show that Auckland was the fastest growing region in the year to March 2018, expanding by 3.9% (see Graph 1). Auckland has regularly been towards the top of the regional league table throughout the last seven years. Its growth during 2018 was underpinned by a strong services performance, with industries such as professional, scientific, and technical services, financial and insurance services, and retail trade all expanding by more than 5.0%
Stephen Barclay’s departure as head of the KiwiBuild unit makes it even less likely that the scheme will be able to progress at the rate hoped for by the government. Mr Barclay was appointed in May last year, when KiwiBuild was a largely autonomous unit within the Ministry of Business, Innovation and Employment. But the unit’s transfer to the new Ministry of Housing and Urban Development has led to an employment dispute and, ultimately, his departure.
Infometrics Christmas Carol 2018 – sung to the tune of Happy Xmas (War is over) by John Lennon and Yoko Ono.
Consolidation in New Zealand’s residential construction industry has resumed since 2011 as building activity has recovered from the Global Financial Crisis. In 2017, the 100 largest firms made up almost 40% of consents, although that figure slipped to 37% in the March 2018 year. We had expected this trend of consolidation to take place, but it contrasts with a declining market share for the top 100 firms in Australia. Does this apparent fragmentation of the market in Australia foreshadow a similar change for New Zealand?
New Zealand’s provincial economies are poised to drive growth in the economy, building on the recovery in dairy prices during 2016, according to Infometrics latest economic forecasts. Spending activity in the regions is comfortably outpacing activity in the main centres, with commodity prices for most exports holding at high levels.
The placement of Ebert Construction in receivership continues the trail of woe in the non-residential construction industry. Businesses in the industry seem to be facing ongoing profitability problems, as reflected by the difficulties experienced by Fletcher Building and Hawkins (among others) over the last couple of years. Yet these problems are occurring despite total construction activity growing by an average of 5.6%pa since mid-2011.