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NZ residential building work slows in 4Q

NZN 2/03/2017 Sophie Boot

The value of New Zealand residential building work rose by a slower pace in the December quarter, hampered by capacity constraints with skilled construction workers in high demand.

The seasonally adjusted value of residential building work gained 2.5 per cent in the three months ended December 31, after a 4.1 per cent rise in the third quarter, Statistics New Zealand said.

Residential building work volumes grew a seasonally adjusted 1.1 per cent in the latest three-month period, down from 2.4 per cent in the third quarter.

"That's a more modest rate of growth than we saw in recent quarters," Westpac senior economist Satish Ranchhod said.

"We are hearing anecdotes of capacity constraints in the sector, particularly with regards to the availability of skilled labour. This follows strong increases in construction activity in recent years, with building activity up a solid 14.9 per cent over 2016 as a whole."

Total building volumes rose 1.9 per cent, seasonally adjusted, in the fourth quarter, while the value rose to 3.5 per cent. Actual value of all building work was $5.3 billion, up 21 per cent from the same quarter in 2015. The value of building work in Auckland was $2 billion, up 34 per cent from the same quarter in 2015, and in Christchurch $1.1 billion, down 2.3 per cent from 2015.

"With strong gains in activity, it is unsurprising that we have seen costs rising. Construction costs rose by an estimated 5.9 per cent over the year to December - their fastest pace since 2005. We expect cost pressures to be sustained for some time, and risks are to the upside," Mr Ranchhod said.

"There is a large pipeline of work, including very strong residential demand in Auckland and elsewhere, a large amount of planned infrastructure work nationwide, and continuing reconstruction activity in Canterbury (though this has started to gradually ease back).

''On top of these factors, reconstruction following the recent earthquakes near Kaikoura will reinforce a strong outlook for the construction sector over the coming years. However, emerging capacity constraints may provide some brake on growth."

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