Building consents drop at fastest pace in more than 2 years in September

New Zealand building consents fell at the fastest monthly pace in more than two years in September amid uncertainty around that month's general election.

The number of seasonally adjusted consents dropped 12.2 percent to 1,821 in September, the third consecutive drop and the biggest decline since April 2012 when consents slid 14.4 percent, Statistics New Zealand said. Excluding apartments, which can be volatile, consents dropped 10.4 percent to a seasonally adjusted 1,597, the biggest decline since April 2012 when they fell 12.2 percent. (See graph below)

Uncertainty around the Sept. 20 general election has been cited as a reason for everything from lower business confidence to a drop off in share market activity, reduced house sales and investors dumping shares in power companies. Economists said building consent activity is likely to pick up again, driven by housing shortages and strong population growth, following the return of Prime Minister John Key's National-led government for a third term.

"Residential building consents were much weaker than expected in September," Michael Gordon, Westpac Banking Corp senior economist, said in a note. "It's possible that some consent applications were held back until after the election, given the threat of a broader capital gains tax on property if there were a change of government. However, we have no way to confirm this until we see the October figures."

Excluding seasonal adjustments, consents fell 1.8 percent to 1,985 in September from August but were 6.6 percent ahead of September last year.

Auckland, New Zealand's largest city where a housing shortage is pushing up prices, accounted for 27 percent of consents in September. Auckland consents fell 18 percent to an unadjusted 537 from August, although they were 10 percent ahead of September last year.

Meanwhile in Canterbury consents rose 7.2 percent to 579, accounting to 29 percent of the national total. Christchurch rebuilding activity is driving consents in Canterbury as New Zealand's second-largest city is rebuilt following devastating earthquakes in 2010 and 2011. Canterbury consents were down 3.3 percent from the year earlier month.

In Wellington, the number of consents jumped 64 percent to a 10-month high of 193 and were almost double the 98 consents issued in September last year.

The value of all building consents issued in September was $1,262 million, including $778 million of residential consents and $484 million of non-residential work, the statistics agency said.

Auckland accounted for 39 percent of the non-residential consents, followed by Canterbury with 22 percent and Wellington with 11 percent.

Education buildings were the biggest contributor to non-residential consents, accounting for 29 percent of the value, followed by consents for offices and administration at 17 percent and shops, restaurants and taverns at 14 percent.

"Demand for commercial buildings remains on a clear upward trend, particularly for office buildings which made another solid contribution in September," ASB Bank senior economist Chris Tennent-Brown said in a note. "The improvement in demand for commercial buildings is encouraging, and we expect further growth in non-residential construction over the coming year given increasing business confidence towards investment and increasing tightness in the office market."

ASB's Tennent-Brown said while he is monitoring the spillover inflation effects of strong construction expected over the year ahead, the consent data suggests the level of construction could be plateauing, rather than picking up and adding inflationary pressure.

(BusinessDesk)