Report shows virus impact likely to be felt for the next few years

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The recently released National Construction Pipeline Report 2020 forecasts a short-term decline in construction activity as a result of the Covid-19 pandemic.

The report, commissioned by the Ministry of Business Innovation and  Employment (MBIE), provides a projection of national building and construction activity for the next six years, through to December 31, 2025, based on current settings.

It includes national and regional breakdowns of actual and forecast residential building, non-residential building and infrastructure activity.

“While there is a lot of uncertainty as a result of the pandemic, the report expects a decline in the total value of construction through to 2023, before it starts to recover,” MBIE general manager building system performance John Sneyd says.

Residential construction activity is the largest contributor of national construction, making up 55% in terms of value last year. Historically, residential activity is the most volatile to changing economic conditions, and it is predicted this will be hardest hit by Covid-19.

The report forecasts the value of residential construction will fall 43% from $23.7 billion in 2019 to $13.4 billion in 2023 as a result of an anticipated decrease in new dwelling consents — from the high of more than 37,000 in 2019, to an average of 26,800 per year for the next six years.

“Despite the forecast, demand for residential housing remains strong at the moment. There is steady pipeline of demand, and latest data show new home consents are currently at a 46-year high,” Sneyd says.

“Infrastructure construction is expected to increase, particularly in Auckland and Waikato/Bay of Plenty.

Infrastructure is the only construction area forecast to see sustained growth, reaching $10.1 billion in 2025 — up 6.3% on 2019.”

Other forecasts from the report include:

• Compared to 2019, Auckland is expected to see a reduction in total construction activity of 16% to $14.3 billion by the end of 2025. Waikato/Bay of Plenty is forecast to decrease by 18% to $5.5 billion, Wellington by 35% to $2 billion, Canterbury by 57% to $3 billion, Otago by 33% to $1.8 billion, and the rest of New Zealand by 29% to $4.7 billion.

• Non-residential construction activity (including hotels, offices, retail outlets and industrial buildings) is forecast to drop 42% nationally from $10 billion in 2019 to $5.8 billion in 2022, before recovering to $7.4 billion in 2025.

• Multi-unit dwellings accounted for 41% of all dwellings consented in 2019. Multi-unit dwellings are anticipated to be hardest hit by the Covid-19 pandemic, particularly apartments, and these are forecast to account for 32% of all dwellings consented in 2022.

The report is based on construction forecasting by the Building Research Association of New Zealand (BRANZ), and Pacifecon NZ Ltd data on researched non-residential building and infrastructure intentions.

The report’s forecasts also modelled optimistic and pessimistic scenarios, taking into account lessons from the Global Financial Crisis.

But it points out that Covid-19 is an unprecedented event, and there is still a significant degree of uncertainty around the forecasts.