23 July 2019

Commercial construction and tourism driving Auckland growth

New Zealand’s largest city continues on a roll, but growing pains could still undermine the boom times for Auckland.

Construction work on non-residential buildings, especially in Auckland, drove the overall construction volume growth in the December 2018 quarter, Statistics New Zealand data recently revealed.

Non-residential construction (including work on shopping malls and storage buildings) was up 5 percent in the December 2018 quarter; the biggest quarterly increase in almost three years (since the March 2016 quarter).

“Growth in commercial construction activity was driven by more work on shops and accommodation buildings, particularly in Auckland,” said Statistics New Zealand Construction Statistics Manager, Melissa McKenzie.

Accommodation buildings on the rise 

With Auckland also currently experiencing an unprecedented, sustained period of growth in the numbers of visitors to the region, one sector of construction in particular is being relied upon more than most. Construction of accommodation buildings, including hotels, motels and boarding houses in Auckland was up $212 million during the 2018 calendar year. That represents a 78 percent increase over the 2017 year.

Similarly, construction of shops, including shopping malls, restaurants, and bars in Auckland was up $143 million or (52 percent) in 2018. The growth in visitor numbers is set to continue. Auckland Tourism, Events & Economic Development (ATEED) forecasts suggest that by 2025, the region is expected to welcome more than four million visitors annually (58 percent more than currently arrive each year). That is expected to generate a surge in the visitor economy too; up 85 percent on current levels to an estimated $13.9 billion.

“From an economic perspective, more visitors is good news. But this growth comes with challenges for Auckland’s visitor economy, and Auckland as a whole,” says Steve Armitage, General Manager Destination, ATEED.

More than four million visitors annually are expected to visit the Auckland region by 2025

Balancing the demands of increased roading infrastructure with alternative transport solutions and capacity at the city’s port will all have implications for industry.

New builds ramping up housing supply 

Auckland’s well-publicised housing shortage also has the potential to impact growth. An accumulated housing shortage of more than 34,000 homes has built up in Auckland over the last five years, according to calculations by Interest.co.nz.

In the Auckland region, 12,862 new homes were consented in 2018. Despite the building boom, this figure is down slightly from the year ended October 2018 when 13,078 homes were consented, the highest number since the early 1970s. Of the 13 wards that make up the Auckland region, ten consented more new homes in 2018 than in the previous year to December.

 The largest increase was in the Manurewa-Papakura ward, up from 987 to 1,612; an increase of 63 percent.

Interest.co.nz’s Greg Ninness says the figures suggest that Auckland’s housing shortage is not getting any worse at the moment as new builds ramp up and almost match population growth.

“The improvement in housing supply compared to demand has come about through a reduction in the natural increase in Auckland’s population – the excess of births over deaths.

This declined from 13,800 in the year to June 2017 to 13,000 in the year to June 2018 (-5.8 percent). There was an 11.1 percent reduction in net migration into Auckland, both from overseas and from within New Zealand, to 25,700 in the year to June compared to 28,900 in the previous 12 months.

That brought total population growth down from 42,700 in the 12 months to June 2017 to 38,600 in the 12 months to June 2018 (-9.6 percent).

“So, it looks as if Auckland’s housing crisis has reached – or is at least very close to reaching – its high-water mark,” Ninness said.

From an economic perspective, more visitors is good news. But this growth comes with challenges for Auckland’s visitor economy”