Economic factors
New Zealand's current economic situation
The steady increase in New Zealand's gross domestic product in recent years reflects strong consumption and investment levels, as well as high levels of government and trade activities. However, our economic growth is slowing. The economy grew at 1.5 percent in the year to December 2006, compared to the growth rate of 2.2 percent in the year to December 2005.
Some imbalances in the economy continue. The expansion shifts towards the domestic economy, with widening current account deficits and household sector housing and consumption spending financed by debt. Upside risks to the medium-term inflation outlook associated with the strong housing market and domestic demand are still of concern to the Reserve Bank.
The local labour market remains tight. According to Statistics New Zealand's household labour force survey data, New Zealand's seasonally adjusted unemployment rates have fallen from 5.4 percent in the year ended December 2001 to 3.7 percent in the year ended December 2006. At the same time, the seasonally adjusted labour force participation rates have increased from 66.5 percent in the year ended December 2001 to 67.9 percent in the 2006 census. Low unemployment rates and higher labour force participation rates have raised consumer confidence in recent years.
The building and construction sector
The building and construction sector makes a significant contribution to the New Zealand economy. The construction sector has been increasing in size since the March 2002 year. The gross domestic product for the construction sector in the March 2006 year was 1.41 times what it was in the March 2002 year. However, when adjusted for inflation, the construction industry contracted by 2.1 percent in the year to December 2006. This decline occurred in the context of annual activity in the construction industry peaking to a record high level in the year ended March 2006.
Statistics New Zealand's data indicates increased residential building activity, with consents issued totalling $418 million more during 2006 than during 2005. Non-residential building activity decreased by $213 million during 2006 compared to 2005. Increases in residential building activity and decreases in non-residential building activity are also evident in Statistics New Zealand data measuring the value of building work put in place.
Annual wage and salary increases in the construction industry are higher than increases in the wider workforce. This probably reflects a shortage of skilled workers in the construction industry. Material costs - for instance, copper and aluminium prices - have also risen significantly over the last 12 months. In 2006 the overall cost of construction rose at an annual rate of 5-6 percent for different types of building. This reflects increasingly expensive labour and material costs.
Building and construction activities remain buoyant. Consent values have been increasing since the year to November 2001. The value of all building consents issued in 2006 was 1.73 times the value of all consents issued in 2001. The number of new dwelling consents peaked at 31,423 in 2004. About 21 percent (or 6589) of new dwelling consents in 2004 were apartment consents. In comparison, there were 25,952 new dwelling consents issued in 2006. The number of apartment consents dropped to 3348 (or 12.9 percent) in 2006.
The number and value of non-residential building consents started trending upwards around 2004, and this trend continues despite a recent decline. Increased government spending on new hospitals and prisons coincides with the increase in demand for commercial buildings. The decline in the September 2006 quarter is likely to be partially caused by work constructing new prisons tapering off. Large infrastructure projects, especially those on roads, are expected to keep non-residential construction activities high in the near future.