The legislation that drives our business

The Building Act 2004

The Building Act 2004, as amended in April 2005, aims to improve the control of, and encourage better practices in, building design and construction. It regulates constructing, altering, demolishing and maintaining new and existing buildings throughout New Zealand. It sets standards and provides procedures for people involved in building work to ensure buildings are built properly first time.

The Act aims to achieve more:

• clarity on the standards we expect buildings to meet
• guidance on how those standards can be met
• certainty that capable people are undertaking building design, construction and inspection
• scrutiny in the building consent and inspection processes
• protection for homeowners by introducing mandatory warranties.

Some measures in the new legislation will be implemented over 3 to 5 years, others came into effect on 30 November 2004 and on 31 March 2005.

Implications for the Department

Implementing the Building Act will remain a key priority for the Department. We will continue to work closely and collaboratively with building consent authorities (as co-regulators) and the building industry to develop an effective regulatory system.

Recent trends in the building industry

Building and construction activity

The New Zealand building and construction industry has for the last 4 years experienced a period of rapid growth. However, building volumes are starting to ease. In contrast, the housing markets continue to reach new and higher price peaks. Trends in the market include the following.

• Continued housing market buoyancy. Measures of the annual increase in house prices and the time taken on average to sell a house indicate that the housing market is robust.
• Price pressures continuing in the building and construction industry (quarterly cost increases continue faster than general inflation).
• Commercial and industrial property values have increased strongly. Anecdotal evidence indicates that lower increases in rents has resulted in declining yields on the increased property values.
• The mortgage debts of households continuing to rise, even though interest rates are increasing and household debt levels are high.

Figure 2 illustrates trends in building industry growth compared to growth in the New Zealand economy.

Residential construction

Following a period of growth, the number of building consents issued for residential dwellings has fallen by 17 percent from calendar year 2004 to 2005. The number of building consents issued is an indicator of future building, so this decline implies some weakening in the residential property and building sectors in the near future.

The number of building consents issued for new apartments varies from quarter to quarter. However, the large drop in building consents for new apartments over the last year suggests that apartment consents may have reached a local peak. It is uncertain how long this decline in consents will take to translate into a decline in actual building activity, given anecdotal evidence that builders have a considerable amount of work on their books.

Non-residential construction

The number of building consents for non-residential buildings increased strongly during 2004. However, growth slowed slightly in 2005 with the number of building consents issued that year being only 0.8 percent higher than in 2004.

Building costs and construction

The Capital Goods Price Index from Statistics New Zealand shows the cost of building and construction continues to rise. The annual increase in the December 2005 quarter is 6.4 percent for residential buildings, 3.1 percent for non-residential buildings and 6.9 percent for other construction.

Implications for the Department

The level of building activity in the New Zealand economy has continued to grow over the last few years, and is continuing to create challenges within the sector.

A major challenge for us is to foster an environment where practical solutions for meeting demand are balanced with the need for safety, quality and affordability.

With the passing of the Building Act 2004 and subsequent amendments, considerable pressure has been put on all regulatory bodies to balance the need for improving building quality, accessibility and sustainability with increasing levels of domestic demand and house price inflation.

Forecasters are predicting a market slowdown that will relieve the pressure on the building and construction industry. All participants in the sector will still need to work together to implement the Building Act 2004, and successfully manage 'business as usual' at whatever level market activity eventually stabilises to.

Building quality

Defects in the weathertightness of some homes built during the 1990s became evident at the end of that decade. Following a report from the Overview Group on the Weathertightness of Buildings ('the Hunn Report') in 2002, the Government established the Weathertight Homes Resolution Service (WHRS).

The number of claims being made to the WHRS continues to increase, with the majority of affected houses and multi-unit apartment blocks in Auckland. Other major territorial authority regions affected, in order of significance, are North Shore City, Wellington City, Waitakere City and Christchurch City. The majority of active claims involve apartment complexes (72 percent).