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26 February 2024

Resuming Paused Projects: Why Clients Should Be Reconsidering Their Decision

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1. You’re not alone — others are confident

Among the large numbers of mortgages that have had to refix recently at much higher interest rates, new mortgage borrowing remains strong and resilient. In the last quarter of 2023 new lending hit $17.6bn — almost a billion more than the same quarter in 2022. As a proportion of total lending, first-home buyer borrowing is at record levels and investors are returning.

2. An asset in demand: Population growth will fuel demand for housing

Overall population grew by 145,100 in 2023. The combination of natural population growth and a post-Covid surge in net migration bolstered the demand for housing. Migration is typically a medium-term driver with the RBNZ estimating a two-year lag between migration and housing construction. At these current levels of population growth, we estimate north of 50,000 new dwellings would be required.

3. Rental opportunities

With the RBNZ estimating it takes new arrivals two years to convert from renter to homeowner, this strong rental demand will drive demand for rental properties. We’re seeing good evidence of this already with a 5% growth in bond lodgements and rent price inflation up 7.2% nationwide. The imminent return of interest deductibility will increase the financial attractiveness further for investors.

4. Certainty of cost

Building materials pricing is stabilising after two years of increases, and globally there is excess supply and weaker demand for building materials. This means more cost certainty awaits those customers wishing to push on.

5. Funding affordability

Despite the current hawkish stance of the RBNZ, the general expectation is for the OCR to commence a downward trend from early 2025, so projects in design and planning now will be the first to take advantage of new lower rates.

6. Start on time

Capacity is returning to the sector after record months of building completions. Reviewing data on building merchant activity, sales are down almost 10% year on year suggesting you can now secure good builders and get your project underway in a timely manner.

Similarly, capacity amongst other trades appears to be improving with plumbing merchant sales year on year down almost 15%.

7. Enjoy design and process efficiency 

And finally, with building consent approvals forecast to decline over the next two years, this should create a wonderful opportunity for both design efficiency and faster processing through the building consent authorities.

Turning these positive factors into confident next steps for clients is our responsibility. With an increased supply of builders and subbies, a growing excess in building materials globally and a strong suggestion of cheaper money there is a real opportunity for design work to start now to take advantage. If they are in a position to, smart clients should seriously consider getting underway now. 

Dive deeper: Download our latest Pulse Report for full insights on NZ construction demand or our Architect Dashboard for a concise summary.

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