How renovation work fits alongside new residential building

One of the comments I often hear talking to people in the residential construction industry is that alterations and new building activity move in different directions. The comment is usually made in the context of a drop-off in new building, when alterations and additions (A&A) are viewed as a cushion to soften the downturn. But the data does not back up this assertion.

New Zealand’s economic outlook turns

Economic growth during 2018 is set to fall short of previous expectations, according to Infometrics’ latest forecasts. Infometrics sees economic growth slowing from 3.0%pa currently to 2.6%pa in early 2019, contrasting with the forecaster’s previous expectation of accelerating growth during 2018.
“Labour capacity constraints in the residential construction sector, changes in central government’s infrastructure priorities, and slightly disappointing dairy prices will all weigh on growth this year,” says Infometrics Chief Forecaster Gareth Kiernan.

Wanting to spend, but needing to plan

One key infrastructure issue that has arisen since we prepared our last set of forecasts in September and October is the change in focus for transport spending under the new government. Although both National and Labour emphasised the need for investment in infrastructure, National’s attention was very clearly on roads, while the Labour-led coalition is more focused on rail and public transport.

Modelling supply-side constraints in the construction sector

We’ve received feedback that our forecasts for new dwelling consents are overly optimistic given capacity pressures. In response to this feedback, we have created a supply-side model to help inform our residential construction forecasts. Our core model is essentially a demand-based one. In most cases, the underlying fundamentals of population growth and interest rates are enough to inform us of what’s to come. But this approach only works if supply can keep up.

Little boost to the housing supply from KiwiBuild

Labour’s KiwiBuild initiative, to deliver 100,000 new affordable homes over the next decade, comes when capacity in the residential construction industry is already stretched. Any new homes constructed during the next 2-3 years will be the maximum possible under these supply constraints, whether the government chooses to build during this time or not.

Better growth in 2018 to prelude a more challenging next decade

Infometrics’ latest forecasts show the New Zealand economy still has more gas in the tank for 2018, despite the slowdown of the last 12 months and suggestions from some analysts that all the economy’s key drivers have already peaked. Infometrics’ Chief Forecaster Gareth Kiernan points to a buoyant export sector, increased government spending, and the perennial need to build more houses in Auckland as the key components of GDP growth averaging 3.4%pa during 2018 and 2019.