BNZ Layperson's Guide to the economy

For those without economics degrees this is a simple guide to something significant which happened in the world of economics today that has relevance to the person on the street.

BUILDERS WILL BE HARD TO FIND

WHAT HAPPENED?

Statistics New Zealand released their monthly data showing the number of consents issued by local authorities for houses and apartments to be built. Also they released data on the value of consents issued for various types of non-residential buildings such as factories and hospitals. The data showed that after removing seasonal factors there was a 21.6% rise in dwelling consent numbers in December from November. Numbers rose by a strong 23.9% during the entire December quarter and rose 32.7% for the year. The data are fundamentally strong and even houses are kicking up whereas to date the big gains have been for apartments. House consents seasonally adjusted jumped 24.6% in December and were up 5% for the quarter and 21.8% for the year. Apartment consent growth was 101% for the year!

The other half of the data showed the value of non-residential building consents at $212m in December, the same as November and 5.6% higher than a year ago. OK but not especially strong. For the year these consents were up just 1.3%, led by shops & restaurants +27%, warehouses +23%, hotels/motels +19%.

WHY DID THIS HAPPEN?

House building has been boosted by the following factors.

Below average interest rates since June 2001.

Strong population growth of 1.5% the past year from 0.7% the previous year.

Below average house building from 2000 to mid-2001.

Accommodation requirements of the foreigner education sector.

Investor demand in preference to equities.

Non-residential building has been underpinned the past year by the following.

Farmers undergoing a one in 20 year upgrading of farm infrastructure.

The tourism industry catering for an ever growing number of visitors who are increasingly staying longer.

Primary processing facilities to handle increased milk production and modernisation required in other facilities.

WHO IS AFFECTED AND HOW?

Anyone trying to get a home or factory built because labour is in short supply and waiting times are growing. Construction costs (mainly labour related) are also getting pushed higher. Expect some flow of carpenters to the cities as farm building construction is easing rapidly.

Borrowers as the strong building industry is one factor preventing the Reserve Bank from reacting to the rising currency and weak export receipts by easing monetary policy right away.

Lenders because of the strong demand for funding of construction projects.

Builders as they are going to be kept busy meeting unsatisfied demand for quite some time.

WILL THIS CONTINUE?

Dwelling supply will eventually catch up with demand and surpass it. But given low interest rates, a firm labour market, investor demand and net migrant gains we don’t see this happening until 2004.

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