• New Zealand dwelling building activity to strengthen further post-Christchurch rebuild
• Driven by strong activity particularly in Auckland
• Amid housing demand from its population growth and a shortage in housing supply
• Infrastructure construction to be boosted by Accelerated Auckland Transport Programme 

The construction sector in New Zealand is forecast to continue to contribute positively to the country’s economy over the medium term, according to leading industry analyst and economic forecaster, BIS Shrapnel. While the sector will be led by a renewed surge in dwelling building activity to new highs in the second half of the five-year outlook period, overall non-residential and infrastructure construction activities are likely to remain at relatively high levels.

According to the company’s Building and Construction in New Zealand 2016-2021 report, the value of building (residential and non-residential) is expected to peak in 2016/17, capping off a five-year upturn.

However, following a modest decline in dwelling activity forecast for 2017/18, BIS Shrapnel expects reasonably strong rebounds in the activity level (led by Auckland) over the three years to 2020/21 to lift the value of new dwelling consents to a fresh high of around NZ$6 billion in real terms. The value of non-residential building consents (new, and alterations and additions) is expected to remain at relatively high levels, averaging NZ$3.3 billion per annum in real terms over the five-year outlook period – which is comparable to the level over the preceding five-year period.

The next dwelling building upturn is likely to drive consents in New Zealand up to around 32,000 by 2020/21, which is comparable to the peak level during the 2003/04 building boom.

“The ‘other’ dwelling segment (apartments, retirement units, town houses and flats) is expected to register strong growth, as high land cost especially in the Auckland region and the government’s plan to increase affordable housing supply will result in higher density housing projects in the city’s fringe and suburban areas,” said report author and BIS Shrapnel senior project manager, Adeline Wong.

“Furthermore, as Auckland grows to become an international city, demand for inner city and lifestyle apartments is expected to rise, following the trends seen across the Tasman in Sydney, Melbourne and other growing international cities across Asia.”

Several factors that are likely to contribute to Auckland’s dwelling building activity during the outlook period. These include strong population growth of 1.7 per cent per annum on average, a housing stock deficiency and strengthening coordination between the central government and Auckland City Council to increase housing supply through the implementation of the Housing Accord and Auckland Unitary Plan.

“Net overseas migration gains are an important driver for housing demand, and we expect net migration to reach a record high of over 64,000 people in the year ending June 2016,” said Wong. “Over the outlook period, we expect net overseas migration gains to ease back to around 10,000 people by 2019. Typically, a larger portion of overseas migrants are expected to settle in Auckland. This combined with the prevailing pent-up demand amid a chronic housing shortage in the city will underpin the Auckland housing market during the outlook period.

“We expect Auckland to continue to have a fairly substantial level of housing stock deficiency over the next few years, but for the deficiency to moderate albeit gradually from 2018/19 as rising dwelling completions add to the stock.”

Non-residential building activity over the outlook period is sustained mainly by new and redevelopment projects in the Christchurch CBD rebuild, and a pick-up in the commercial and industrial building sector in Auckland in particular. Auckland non-residential building activity is likely to run at reasonably high levels over the coming years, driven by tight supply in the office, retail and industrial markets amid positive business investment sentiment under more sustainable economic growth.

The hotel building sector may surprise to the upside due to the strong tourism sector, while the educational building sector will be supported by the government’s Greater Christchurch Education Renewal Programme with NZ$1.14 billion over a 10-year period allocated to rebuild schools in Christchurch, and also the NZ$1 billion to be spent on the New Schools and Kura Programme to 2022.

“Infrastructure construction will follow a relatively subdued trend over most of the forecast period as projects associated with the Christchurch rebuild are being completed and hence may phase down in the near term,” said Wong.

However, construction activity during the period will be underpinned mainly by key road projects under the Accelerated Auckland Transport Programme such as the Western Ring Route, East-West connection and Auckland-Manuaku Eastern Transport Initiative. The other major road project is Wellington Transmission Gully Road. There is also potential contribution from the Auckland City Rail Link project, which may be fast-tracked to start work two years earlier than envisaged, in 2018.