Building boom longer and stronger

The Ministry of Business, Innovation and Employment’s (MBIE) latest National Construction Pipeline Report is forecasting that the value of building activity will peak at $42bn in 2020

The previous report forecast that building activity would peak in 2017 at $37bn. Residential building is a major driver of the increase in forecast building and construction. This is largely due to the unmet demand for housing in Auckland.

The value of residential construction is forecast to peak at $25bn in 2020. In line with that growth, new dwelling consents are also expected to grow over the next five years, reaching a peak of 34,500 in 2019 and 2020. The report also predicts that consents will exceed the 2004 peak of 31,000 this year.    

Multi-unit housing, which represented 29% of all dwelling units consented in 2016, is expected to make up 38% of all residential dwellings by 2022.

Infrastructure spending on the rise

This year’s report forecasts non-residential and infrastructure spending at a regional level for the first time. Nationally, the value of non-residential construction grew by 12% last year and is expected to peak at $9.6bn in 2019. Growth is expected in all regions except for Canterbury, where activity is forecast to have reached peak levels.

The private sector is responsible for around 50% of total activity in the non-residential sector, with local and central government roughly splitting the remainder.

The value of infrastructure activity (all construction that is not a building, such as transport, ground works, amenities and heavy and civil) is expected to increase by 4.5% on average for the next six years, peaking at $9.5bn in 2022, following a 2.3% decline in 2016.

Major projects include the Auckland City Rail link, roads of national significance and repairs related to the Kaikoura earthquake.

Nostradamus’ nail bag

Comparing the 2016 report’s forecasts with reality shows that the revised forecast for 2016 to 2022 for all construction now has a higher, longer and smoother peak. More growth occurred in residential building than forecast. Forecasted non-residential building growth occurred, but infrastructure activity decreased rather than growing as predicted.

The unexpected decrease in infrastructure was balanced out by higher than expected residential building growth, leaving the total forecast value of building activity slightly higher than predicted.

This report forecasts a slightly lower rate of growth for non-residential building to a later, higher, longer peak than the 2016 report. It also included 29 known projects valued $100 million and over, which were anticipated to start between 1 April 2016 and 31 March 2017. Just over half started as anticipated.

This could be explained by ‘optimism bias’, an effect in construction caused by the level of over-confidence that comes with construction projects, where in reality many projects may lag behind their original timelines or occasionally be cancelled.

Regional breakdowns

 Auckland

Last year, Auckland accounted for 37% of all building and construction activity. This is forecast to rise to 41% over the 2017 to 2022 period.

The value of residential building in Auckland grew 18% in 2016 and is expected to grow a further 35%, before levelling out in 2021 at around $10bn. Dwelling consents in the region are forecast to continue growing, eclipsing the 2002 peak of 12,182 consents in 2019.

In line with the national trend, multi-unit dwelling consents are expected to rise from 44% of all dwellings consented in 2016 (the highest share in the country) to 50% by 2022.

Non-residential building activity is expected to increase by 69% to $3.9bn in 2019. Infrastructure activity is also forecast to grow strongly, rising 34% to $3.9bn over the next six years.

Canterbury

Although it fell by 11% in 2016, residential building activity in Canterbury has remained at a higher level than previously forecast and is expected to remain at current levels until 2018, when it is forecast to gradually decline. A total of 31,000 new dwelling consents are expected to be issued over the next six years.

The decline in residential construction has been balanced out by non-residential construction, which was worth $2.4bn in 2016 and is expected to remain at this level until 2020. Infrastructure activity is forecast to grow steadily, rising by 28% from 2016 to $1.3bn in 2022 (including repairs related to the Kaikoura earthquake).

Waikato/Bay of Plenty

Residential building activity is growing at high levels in the Waikato/Bay of Plenty region, with respective increases of 30% and 24% in 2015 and 2016. This year-on-year growth is forecast to continue until 2020, including a combined total of 52,000 new dwelling consents in both regions between January 2015 and December 2022.

Non-residential building is forecast to grow by 29% across the two areas before levelling out in 2020. Infrastructure activity is forecast to grow by 40% over the next six years to $1.8bn in 2022.

Wellington

The total value of building activity in Wellington rose by 6.9% in 2016 to $2.4bn, driven mostly by residential construction. Wellington is also the only region with a share of multi-unit dwellings comparable to Auckland at 38%.

Non-residential activity is forecast to remain around current levels following a 2% jump to $0.6bn last year, before dipping in 2019. Infrastructure remained steady over the past two years, with steady growth forecast until 2022.

Rest of New Zealand

The rest of New Zealand covers Gisborne, Hawke’s Bay, Manawatu-Wanganui, Marlborough, Nelson, Northland, Otago, Southland, Taranaki, Tasman and the West Coast.

Across these regions, dwelling consents grew by 27% in 2016 and are forecast to continue around current levels of more than 6,000 per year up to 2019 before reducing. The following regions recorded some of the strongest consent growth in 2016:

• Manawatu-Wanganui – (up 49% to 800 dwelling units).
• Northland – ( up 43% to 1,200 dwelling units).
• Nelson – (up 34% to 200 dwelling units).
• Hawke’s Bay – (up 32% to 500 dwelling units).
• Otago – (up 29% to 1,800 dwelling units).

Non-residential building activity in the rest of New Zealand remained around $1.1bn in 2015 and 2016. It is forecast that non-residential building activity will grow 39% to $1.7b in 2019 before dropping back to $1.3bn in 2022.

Infrastructure activity in the rest of New Zealand region remained around $1.4bn in 2015 and 2016. Infrastructure growth is expected to pick up in 2017 with 25% growth forecast over the next six years increasing to $1.7bn in 2022.

About the report

 The National Construction Pipeline Report 2017 was commissioned by MBIE and jointly prepared by Pacifecon NZ and BRANZ. The Productivity Partnership commissioned the first report in 2013; this is the fifth edition.

The report provides a forward view of national construction activity for the next six years, ending on 31 December 2022.

Values are in constant December 2016 dollars to remove the effects of inflation and are expressed in $billions per quarter or per year, unless otherwise stated.

Known projects refer to construction project intentions recorded by Pacifecon, and based on expected construction costs over time for these projects. It is an extensive but incomplete list of construction intentions in New Zealand.

Click here to read the full report: national-construction-pipeline-report-2017