However, that bounce in monthly consent numbers is definitely not a sign the construction sector is heating up, Satish Ranchhod, Westpac senior economist says.

February’s bounce was centred on the volatile medium-density housing sector and followed a particularly weak January result. “The result takes us back to trend, and that trend is firmly down.” 

Annual consent numbers give a clearer picture of what’s happening to home building.

The number of new dwellings being consented has fallen 25% to just over 36,000 in the past year.

There have been sharp falls in most regions including Auckland, down 27 per cent, Wellington, down 40 per cent and Canterbury, down 20 per cent. 

That weakness has been a result of tougher financial conditions. High interest rates and sharp rises in building costs in recent years have made many projects uneconomical, especially given the softness in the housing market. 

Consents for new dwellings have been dropping back for more than a year. However, the downturn in actual home building activity – down about 10% over the past year – has been more modest than the sharp fall in consents, Ranchhod says.

Experimental statistics released by Stats NZ indicate that it takes about 18 months on average for consented new dwellings to be built.

“That’s because earlier shortages of staff and materials meant that building activity was not able to keep up with the large number of projects consented in recent years, with project times stretching out (those longer completion times were reflected in some of the additional data Stats NZ has released).”

He says that also means there is still a large number of projects yet to be completed, and consequently the downturn in construction activity has been gradual to date. 

Even so, fewer new projects are coming to market, with many builders in the construction industry reporting weak forward orders. “As a result, we expect a sizeable downturn in building activity over the year ahead,” Ranchhod says.

That fall in building activity is occurring at the same time as population growth is booming, adding to the risk of housing shortages across the country.

Cheaper houses

To counter the drop in building activity and in an attempt to make houses more affordable, Building and Construction Minister Chris Penk says residential building materials allowed in trusted overseas markets will automatically be approved in New Zealand under a three-pronged shakeup of the Building Act.

Penk says the cost of building a home has climbed significantly in the past few years, partly because it is difficult to access alternative building products when supplies run short. 

“It has become more difficult and expensive to build in New Zealand, with the cost of building a house increasing by 41 per cent since 2019. It is around 50 per cent more expensive to build a stand-alone house here than in Australia.” 

He says part of what drives up costs is the amount of red tape. “For example it is almost impossible to use new building products in New Zealand without facing huge delays, with some approval pathways taking up to two years before a new product is recognised for use. By removing the need for designers or builders to verify materials standards, which is costly and time-consuming, it will open up competition.  

 “This red tape entrenches the use of well-known products and ultimately makes it more expensive to build anything.”

The two other changes are:

• Requiring building consent authorities to accept the use of products that comply with specific overseas standards that are equivalent to or higher than those in New Zealand.
• Approving the use of building products certified through reputable certification schemes overseas. For example, the approval of one Australian scheme, WaterMark, could immediately provide Kiwis with access to 200,000 products. 

Penk says this is a major shakeup that will drive down the cost of building without compromising on quality, to make it easier and more affordable for people to build or renovate a home.

“It will also help improve the country's resilience to supply chain disruptions and reduce barriers for Kiwi businesses trying to find alternative approval pathways in New Zealand and export their product overseas. 

“Cutting red tape and building infrastructure are part of the Government’s wider plan to rebuild the economy.”