Building work put in place

Slowing residential sector drives easing construction volumes

6 Mar 2023

Joel Glynn

Our take on the latest Building work put in place (Mon 6 Mar 2023)

Total construction volumes down 1.6% in December quarter (seasonally adjusted)

Residential construction activity fell 2.6% from September quarter (seasonally adjusted)

Non-residential construction values in Waikato up 73%pa in December quarter

The key numbers...

Construction volumes eased 1.6% (seasonally adjusted) in the December quarter taking the total value of activity to $9.3b, pulled down by a 2.6% (seasonally adjusted) decline in residential construction activity. Non-residential construction volumes edged up 0.4% (seasonally adjusted) from the September quarter, keeping the quarterly value of activity at about $3.0b.
Despite falling from the previous quarter, total construction volumes were still 6.7% higher than in the December 2021 quarter.
The decline in residential construction activity was driven by lower work put in place in the North Island, with the exception of Auckland. The value of work put in place fell $127m across the North Island (excluding Auckland).
Residential work put in place in Auckland and Canterbury increased from the September quarter, continuing the strength in activity of the last two years. Between December 2021 and 2022, residential work put in place in Auckland and Canterbury increased 22% and 34% respectively.
Non-residential construction was supported by strong activity in Waikato in the December quarter, with $37m more construction work put in place compared to September. Over the last year, non-residential work put in place in Waikato has increased 73%, as strong factory and storage building drove higher levels of construction activity.
Health, education, and social buildings were strong in the December quarter, with an additional $37m, $17m, and $17m in construction work put in place compared to the previous quarter. Although accommodation building was down 14% from a year ago, it was still $67m higher than our forecast and was the main contributor to total non-residential activity being stronger than expected.

Auckland and South Island drive residential activity

Annual % changes in the value of building activity

...and our reaction

We anticipated that slowing construction activity would be driven by a softer residential sector, as falling property values and higher financing costs in the residential property market weaken demand. Nevertheless, new residential building activity was still about 5% higher than our forecast for the quarter. It appears that alterations activity is being more quickly affected by the negative factors outlined above.
A considerable amount of residential consents remain in the pipeline, which suggests residential construction activity will steadily ease over the next 2-3 years, rather than drop off a cliff. However, we expect cancellation rates will increase as house prices keep falling and interest rates continue to rise, which could result in more substantial declines in residential building activity sooner.
Upward momentum in non-residential construction appears to be slowing, but activity still increased in the December quarter. The types of building activity being done is shifting away from factory and storage building, as domestic and global supply chain pressures ease, towards publicly funded building activity, such as hospitals and social buildings.
Construction activity is clearly starting to slow, a trend which we expect will continue until 2025. However, at this stage, building volumes remain elevated both on last year and pre-pandemic levels, with December quarter work put in place up 6.7% on December 2021, and 11% on December 2019.

Latest updates

Premium

Building work put in place

Slowing residential sector drives easing construction volumes

The key numbers...

Auckland and South Island drive residential activity

...and our reaction

Latest updates

Construction activity at a 10-year low

Non-residential work hammered as residential softens further

Non-residential activity continues to decline

Lower residential activity leads construction decline