House-building seen falling 35%
House building forecast slumps by $11b/year by 2025; Wood scraps forced contracting-out model for buses; Services sector sags from post-Covid bounce; China's economy cooling fast
TLDR: Recessionary winds kept blowing today in the global economy and here, with China’s factories reporting shrinking orders and consumers spending less. Here, the main annual forecaster for Aotearoa-NZ’s construction sector saw an $11b a year slump in house-building as higher interest rates and a crash in confidence hammers the growth of new housing supply.
So what? - Inflationary pressures are easing rapidly as consumers globally react badly to higher prices and house builders here brace for a transition from boom to bust because of higher interest rates and a slump in confidence in line with falling house prices.
The bottom line? - Wholesale longer-term interest rates are expected to keep falling, even as the Reserve Bank hikes the cash rate again on Wednesday. Hopes of a surge in housing supply helping to solve our housing affordability crisis are now fading as private buyers and funders of new homes retreat and the Government is not able to step in because of its self-imposing funding restraints. House prices are likely to be bouncing by late next year as vendors and landlords celebrate the likelihood of a National/ACT win.
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House building to slump
BRANZ and Pacifecon published their annual 10th National Construction Pipeline Report, which showed they expected house building work to slump by more than a third or $11b to $19.6b per year over the next five years as 16,000 fewer consents in Auckland are now expected because of higher interest rates and a crash in confidence.
“We forecast that Auckland reached its peak in dwelling consent activity in 2021. The forecast is for a slight decline in the number of consents in 2022 before falling to 13,730 at the end of the forecast period. Just under 95,000 dwelling units are expected to be consented in the six years from 2022 to 2027 (111,000 were anticipated over six years in the 2021 report and 73,000 in the 2020 report).” BRANZ and Pacifecon Report.
The report forecast total construction activity would fall steadily from a peak of $50.9b in 2021 to $41.7b in 2027, meaning the fall is completely driven by the house-building sector. Auckland is the most noticeable, with consents falling from 20,529 in 2021 to a low of 13,680 in 2026.
“2021 can be characterised as the year of recovery after the lockdowns of 2020. Activity in the residential sector was strong, buoyed by high levels of consenting and work that was planned to be completed in 2020. However, the impact of material and labour constraints can be seen across the regions as activity has plateaued throughout 2021. RANZ and Pacifecon Report."
Elsewhere in Aotearoa-NZ’s political economy today
In-sourcing buses - Transport Minister Michael Wood announced the replacement of the Public Transport Operating Model (PTOM) with the Sustainable Public Transport Framework (SPTF), which removes the requirement for councils to outsource the bus services to private companies. Councils will be able to run their own bus services, employ their own drivers and set fares and schedules directly. Wood said it would allow Councils to improve pay and working conditions for drivers and improve schedules.
Out-sourcing buses again? - National’s Transport Spokesman Simeon Brown said the replacement of PTOM would make public transport less efficient and increase costs. He said National would ensure public transport was funded with a “market-based approach”, although he did not immediately pledge to repeal it.
Sagging services - BusinessNZ and BNZ published their Performance of Services Index (PSI) survey of business activity in July, which showed a 3.5 point fall to 51.2, which was the lowest reading since February 2022. Any measure under 50 represents a contraction. The survey showed contracting employment and deliveries, but expanding new orders and sales, albeit at weaker levels than in June.
Kiwi Group Holdings, the state-controlled group that owns Kiwibank, announced the sale of Kiwi Wealth to Fisher Funds for $310m
AA Insurance announced Chris Curtin to retire after 28 years as CEO
PM Jacinda Ardern called a crisis Labour caucus meeting in coming days to deal with rogue Hamilton MP Gaurav Sharma after he again used Facebook this afternoon to allege bullying and mental health issues among MPs and his electorate committee backed him and called for an inquiry. Ardern rejected the allegations.
In geo-politics, the global economy, business and markets
China’s economy cooling fast
The People’s Bank of China unexpectedly cut its key interest rates this afternoon after authorities released much weaker than expected factory production and consumer spending data from the world’s second-largest economy (and our largest buyer of exports) in July. Covid lockdowns, weaker orders from buyers in the United States and Europe, and collapses of property developers were cited.
China’s industrial output grew 3.8% in July from a year earlier, the National Bureau of Statistics (NBS) reported, which was down from a 3.9% expansion in June and the 4.6% rise forecast by analysts in a Reuters poll. Retail sales rose 2.7% from a year ago, missing forecasts for 5.0% growth and down from the 3.1% growth seen in June. Reuters
"The July data suggest that the post-lockdown recovery lost steam as the one-off boost from reopening fizzled out and mortgage boycotts triggered a renewed deterioration in the property sector." Julian Evans-Pritchard, senior China economist at Capital Economics via Reuters
Scott Morrison secretly swore himself in to other ministries
Oh no ScoMo - Exctracts from a new book Plagued, written by Simon Benson and Geoff Chambers, revealed that Australian Prime Minister Scott Morrison secretly swore himself into the portfolios of Health Minister Greg Hunt and Finance Minister Mathias Cormann during the pandemic. News.com.au reported Morrison also secretly swore himself as Resources Minister and used the power to block the actual minister’s plan to drill for gas off the New South Wales coast.
New Labor Prime Minister Anthony Albanese announced an investigation into the claims and former Deputy Prime Minister Barnaby Joyce said he was shocked by the discovery of a secret creation of a presidential style of Government. ABC Australia
"To find out he was ghosting his own cabinet ministers, goodness me, he was off on a trip. Honestly I've never heard of this, in World War II I'm not aware John Curtin swore himself in as defence minister. I don't know what was going through his head. If he felt the need to do it, why not tell people? Why be secretive?” Former Australian Labor Leader Bill Shorten
Elsewhere today overseas
Map of the day
Chart of the day
Some fun things
Have a great evening