New Zealand Professional Investment Services Firm

Forsyth Barr

We are proud to be a New Zealand owned firm, with 21 offices throughout the country and over 300 employees. We assist personal, institutional and corporate clients providing a full range of investment services.

Forsyth Barr is a foundation New Zealand Exchange firm (NZX) and accredited market participant. We have been confirmed by the Financial Markets Authority as a Qualifying Financial Entity (QFE).

Research is the cornerstone of our advice. We have one of New Zealand's leading teams of analysts. Our global affiliations ensure comprehensive research coverage of all major investment markets.

New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

<h2><a target="_blank">Building Consents</a></h2>
NZ Consents — Generational High
With the December data yet to be reported, it is already clear that residential consents in 2019 will land at the highest level for a calendar year in 46 years. Non-residential has not been as strong, but, in floor area (sqm) consented, it looks like it will tick higher to be the strongest calendar year in 11 years. The construction pipeline is generally fit and well as we start 2020. Record low interest rates, high migration, and tight housing supply add up to our continued expectation that construction activity will remain elevated for the foreseeable future.
Residential consents at a generational high
November consents, -8% mom/+8% yoy, pulled back a touch on recent months due to inherently variable higher density dwellings, but remained a very healthy 35.7k (annualised). Detached dwellings were broadly flat, -2% mom/+1% yoy.
With 2019 behind us it is clear we will end the year with (1) the highest calendar year residential consents since 1973, (2) after two flattish years, growth in headline consents (past 12m +13% yoy) and more importantly floor area consented (+5%, muted by the continued lift in higher density dwellings), (3) geographically broad based strength with (past 12m) Auckland +16% yoy, Canterbury +14%, Waikato +13%, Wellington +11%, and Bay of Plenty +7% (these regions account for c.80% of residential construction), and (4) a very healthy pipeline to start 2020. This aligns with improving sentiment in industry surveys whose pessimism threw some investors a head fake during 2019.
Non-residential trend easing
The non-residential backdrop is not quite as positive. Consents are inherently variable, but the past six months, -2% yoy in value and -13% in sqm, do suggest a softening trend. This is consistent with the anecdotes we hear that the pipeline is thinning (largely in Auckland); however, we maintain the view that any downturn will likely be relatively modest. The starting pipeline level is healthy, and strong economic and population growth over recent history, coupled with government investment, should underpin investment across most segments.
Figure 1. NZ building consents (November 2019)
<table class="table table-striped">
<thead>
<tr>
<td style="width: 99.1pt;">
<a target="_blank">&nbsp;</a>
</td>
<td style="width: 50.6pt;">
1 month
</td>
<td style="width: 50.6pt;">
3 months
</td>
<td style="width: 50.6pt;">
6 months
</td>
<td style="width: 50.6pt;">
Annual
</td>
</tr>
</thead>
<tbody>
<tr>
<td style="width: 99.1pt;">
<a target="_blank">Residential</a>
</td>
<td style="width: 50.6pt;"></td>
<td style="width: 50.6pt;"></td>
<td style="width: 50.6pt;"></td>
<td style="width: 50.6pt;"></td>
</tr>
<tr>
<td style="width: 99.1pt;">
Consented dwellings (#)
</td>
<td style="width: 50.6pt;">
&nbsp;
</td>
<td style="width: 50.6pt;">
&nbsp;
</td>
<td style="width: 50.6pt;">
&nbsp;
</td>
<td style="width: 50.6pt;">
&nbsp;
</td>
</tr>
<tr>
<td style="width: 99.1pt;">
Detached houses ('000s)
</td>
<td style="width: 50.6pt;">
22.3
</td>
<td style="width: 50.6pt;">
22.1
</td>
<td style="width: 50.6pt;">
22.1
</td>
<td style="width: 50.6pt;">
22.0
</td>
</tr>
<tr>
<td style="width: 99.1pt;">
Total ('000s)
</td>
<td style="width: 50.6pt;">
35.7
</td>
<td style="width: 50.6pt;">
38.0
</td>
<td style="width: 50.6pt;">
37.4
</td>
<td style="width: 50.6pt;">
37.0
</td>
</tr>
<tr>
<td style="width: 99.1pt;">
&nbsp;
</td>
<td style="width: 50.6pt;">
&nbsp;
</td>
<td style="width: 50.6pt;">
&nbsp;
</td>
<td style="width: 50.6pt;">
&nbsp;
</td>
<td style="width: 50.6pt;">
&nbsp;
</td>
</tr>
<tr>
<td style="width: 99.1pt;">
yoy % chg
</td>
<td style="width: 50.6pt;">
&nbsp;
</td>
<td style="width: 50.6pt;">
&nbsp;
</td>
<td style="width: 50.6pt;">
&nbsp;
</td>
<td style="width: 50.6pt;">
&nbsp;
</td>
</tr>
<tr>
<td style="width: 99.1pt;">
Detached houses
</td>
<td style="width: 50.6pt;">
1.0%
</td>
<td style="width: 50.6pt;">
2.6%
</td>
<td style="width: 50.6pt;">
5.2%
</td>
<td style="width: 50.6pt;">
4.6%
</td>
</tr>
<tr>
<td style="width: 99.1pt;">
Total
</td>
<td style="width: 50.6pt;">
7.9%
</td>
<td style="width: 50.6pt;">
16.5%
</td>
<td style="width: 50.6pt;">
14.9%
</td>
<td style="width: 50.6pt;">
12.9%
</td>
</tr>
<tr>
<td style="width: 99.1pt;">
Total floor area
</td>
<td style="width: 50.6pt;">
-6.6%
</td>
<td style="width: 50.6pt;">
4.8%
</td>
<td style="width: 50.6pt;">
5.3%
</td>
<td style="width: 50.6pt;">
5.4%
</td>
</tr>
<tr>
<td style="width: 99.1pt;">
&nbsp;
</td>
<td style="width: 50.6pt;">
&nbsp;
</td>
<td style="width: 50.6pt;">
&nbsp;
</td>
<td style="width: 50.6pt;">
&nbsp;
</td>
<td style="width: 50.6pt;">
&nbsp;
</td>
</tr>
<tr>
<td style="width: 99.1pt;">
Non-residential
</td>
<td style="width: 50.6pt;">
&nbsp;
</td>
<td style="width: 50.6pt;">
&nbsp;
</td>
<td style="width: 50.6pt;">
&nbsp;
</td>
<td style="width: 50.6pt;">
&nbsp;
</td>
</tr>
<tr>
<td style="width: 99.1pt;">
Total (NZ$m)
</td>
<td style="width: 50.6pt;">
643
</td>
<td style="width: 50.6pt;">
1,881
</td>
<td style="width: 50.6pt;">
3,593
</td>
<td style="width: 50.6pt;">
7,390
</td>
</tr>
<tr>
<td style="width: 99.1pt;">
yoy % chg
</td>
<td style="width: 50.6pt;">
-22.7%
</td>
<td style="width: 50.6pt;">
-6.4%
</td>
<td style="width: 50.6pt;">
-1.7%
</td>
<td style="width: 50.6pt;">
4.9%
</td>
</tr>
</tbody>
</table>
Source: Statistics NZ, Forsyth Barr analysis
<div class="content-highlight">
Investment View
Whilst NZ-building related stocks headline valuation multiples appear prima facie attractive relative to the broader market, in our view these fairly reflect elevated NZ construction activity and company-specific issues.
</div>
Matt Henry, CFA matt.henry@forsythbarr.co.nz +64 9 368 0115

Building Consents
NZ Consents — Generational High
With the December data yet to be reported, it is already clear that residential consents in 2019 will land at the highest level for a calendar year in 46 years. Non-residential has not been as strong, but, in floor area (sqm) consented, it looks like it will tick higher to be the strongest calendar year in 11 years. The construction pipeline is generally fit and well as we start 2020. Record low interest rates, high migration, and tight housing supply add up to our continued expectation that construction activity will remain elevated for the foreseeable future.
Residential consents at a generational high
November consents, -8% mom/+8% yoy, pulled back a touch on recent months due to inherently variable higher density dwellings, but remained a very healthy 35.7k (annualised). Detached dwellings were broadly flat, -2% mom/+1% yoy.
With 2019 behind us it is clear we will end the year with (1) the highest calendar year residential consents since 1973, (2) after two flattish years, growth in headline consents (past 12m +13% yoy) and more importantly floor area consented (+5%, muted by the continued lift in higher density dwellings), (3) geographically broad based strength with (past 12m) Auckland +16% yoy, Canterbury +14%, Waikato +13%, Wellington +11%, and Bay of Plenty +7% (these regions account for c.80% of residential construction), and (4) a very healthy pipeline to start 2020. This aligns with improving sentiment in industry surveys whose pessimism threw some investors a head fake during 2019.
Non-residential trend easing
The non-residential backdrop is not quite as positive. Consents are inherently variable, but the past six months, -2% yoy in value and -13% in sqm, do suggest a softening trend. This is consistent with the anecdotes we hear that the pipeline is thinning (largely in Auckland); however, we maintain the view that any downturn will likely be relatively modest. The starting pipeline level is healthy, and strong economic and population growth over recent history, coupled with government investment, should underpin investment across most segments.
Figure 1. NZ building consents (November 2019)




&nbsp;


1 month


3 months


6 months


Annual






Residential








Consented dwellings (#)


&nbsp;


&nbsp;


&nbsp;


&nbsp;




Detached houses ('000s)


22.3


22.1


22.1


22.0




Total ('000s)


35.7


38.0


37.4


37.0




&nbsp;


&nbsp;


&nbsp;


&nbsp;


&nbsp;




yoy % chg


&nbsp;


&nbsp;


&nbsp;


&nbsp;




Detached houses


1.0%


2.6%


5.2%


4.6%




Total


7.9%


16.5%


14.9%


12.9%




Total floor area


-6.6%


4.8%


5.3%


5.4%




&nbsp;


&nbsp;


&nbsp;


&nbsp;


&nbsp;




Non-residential


&nbsp;


&nbsp;


&nbsp;


&nbsp;




Total (NZ$m)


643


1,881


3,593


7,390




yoy % chg


-22.7%


-6.4%


-1.7%


4.9%




Source: Statistics NZ, Forsyth Barr analysis

Investment View
Whilst NZ-building related stocks headline valuation multiples appear prima facie attractive relative to the broader market, in our view these fairly reflect elevated NZ construction activity and company-specific issues.

Matt Henry, CFA matt.henry@forsythbarr.co.nz +64 9 368 0115


Building Consents: NZ Consents — Generational High

Fletcher Building

Building Consents: NZ Consents — Generational High