The latest Code Compliance figures from Auckland Council should sound a warning bell for builders

By Greg Ninness

There is a widening gap developing between the number of new homes being consented in Auckland and the number actually being built.

It generally takes about two years from the time a building consent is issued for a residential project in Auckland until it is completed and a Code Compliance Certificate (CCC) is issued.

So the new homes being completed in August this year probably had their building consents issued some time around August 2020.

The graph below takes this timing difference into account by matching the number of CCCs issued for new dwellings in Auckland each month (the wavy blue line) with the number of building consents issued two years previously (the wavy orange line).

The lighter straight lines show the trends for both sets of figures by smoothing out most of the monthly volatility, making it easier to see long term differences.

This clearly shows a widening gap developing between the number of new homes being consented and the number receiving their CCCs two years later.

However, it does not necessarily mean there will be a downturn in residential construction in Auckland.

It's important to note that the gap first became apparent in early 2020, just as Covid pandemic restrictions were introduced.

These included periodic restrictions on construction activity and disruptions to the supply of labour and materials, which combined to stretch out the amount of time it took to complete a project.

That is showing up in Auckland Council figures which show the percentage of new dwellings receiving their CCC within two years of receiving their Building Consent dropped from 86% in August 2021 to 75% in August 2022.

As a result, the number of new homes being completed in Auckland has declined by about 10% since it peaked (on an annual basis) in the middle of last year.

That should not be a surprise, because if the industry is operating at capacity and projects start taking longer to complete, there's inevitably going to be a reduction in the number of projects completed in a given timeframe.

But there has been no such slowdown in the number of new homes being consented in Auckland, which continues to run at or near record levels.

Hence the widening gap between what is being consented and what is being built.

As the graph below suggests, if current building trends persist, the gap could get even bigger over the next couple of years.

However, there are a few things that could affect those trends.

Lockdowns are now behind us (fingers crossed) and there are also signs that supply line pressures are beginning to ease.

That should improve efficiency in the building industry and help to lift the number of homes being completed.

But there are headwinds blowing from the opposite direction, including the cost and availability of credit to both developers and their end customers, rising costs putting pressure on margins and the general softness of the overall housing market.

There are also uncertainties around where immigration numbers will end up, which could affect both the supply of labour for the construction industry and the level of demand for housing.

While the graph below forecasts an increasing gap between what is being consented in Auckland and what actually gets built, it doesn't predict a decline in new build numbers.

It merely suggests that growth in the number of new homes being completed will be slower than the recent growth in new building consents.

However, the graph should still sound a warning bell for builders, because pressures such as higher costs and the worsening housing market could start to outweigh the benefits of an easing in supply constraints.

If that happens developers could start putting plans for new projects on hold, which would inevitably lead to a decline in construction activity rather than just a levelling off.

But given the difficulties the building industry has faced and is continuing to face, the figures suggest it has survived in surprisingly good shape so far.

This story was originally published on Interest.co.nz and has been republished here with permission.