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Published in May 2006
1177-0503 (Print)
ISSN: 1177-908X (Web) 

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Statement of Intent 2006/2009

Trends and Developments in our Business Environment


The strategic direction outlined in this Statement of Intent takes account of developments in our business environment.

All New Zealanders have a stake in the housing and building sector as consumers, users or investors. We are all concerned about access to housing. Shelter is recognised internationally as a basic human right.1 The quality of our housing, other buildings we use and the built environment generally affects all other aspects of our lives.

New Zealand's current economic situation

Residential building and all building work in New Zealand has been experiencing a period of rapid growth, with output expanding since the March 2001 quarter.2

During 2005, the value of residential building consents was worth $6,849 million and the value of non-residential building consents another $4,106 million. The contribution made by the construction industry to gross domestic product (GDP) was $6,123 million in the 2005 March year. The construction industry has expanded by 43 percent in size since 2001.

While industry output remains at high levels, some economic forecasters are expecting a slowdown this year, followed by a gradual recovery. For the economy as a whole, the short-term outlook is for an orderly slowing of economic activity.

New Zealanders' assets are heavily concentrated in housing when compared to residents of G7 countries. Approximately 90 percent of New Zealand households' net assets are held in housing.3 The growth in household assets was around $600 billion at November 2005. This growth is aligned to the rise in house prices, which have increased by over 60 percent in the last 3 years. Debt servicing costs, relative to disposable income, are also at unprecedented high levels. Household wealth in New Zealand is therefore vulnerable to movement in house prices.

New Zealand is not alone among western economies in experiencing unusually rapid house price inflation in recent years. The Organisation for Economic Co-operation and Development (OECD)4 reports that:

  • over the last 35 years New Zealand's housing 'booms' have been more frequent (there have been four) and volatile (experiencing a cumulative real price increase equalling or exceeding 15 percent) than in any other OECD country
  • New Zealand house price to household income ratios are high, both historically and compared with other OECD countries (exceeding their long-term average by about 40 percent)
  • the level of mortgage debt in New Zealand (129 percent of household income in 2003) compared unfavourably with the average for 15 OECD countries (95 percent of household income)
  • an index of the cost of owning versus renting a house in New Zealand (the house price-to-rent ratio) suggests that housing bought in 2004 was not greatly overvalued (7.6 percent) compared with Australia (51.8 percent).

How environmental concerns affect our business

Regulating the building and construction industry must take account of environmental concerns, in line with government and wider societal expectations.

The Building Act, for example, requires consideration be given to sustainable development and improving energy efficiency in housing and buildings. These considerations are in turn underpinned by the dynamic effects of social trends, globalisation, the labour market and demographic changes.

The Government has a strong commitment to sustainable development. To that end, the Government has a programme of action to set directions and outline the initial actions it will take. The focus will be on water quality and allocation, energy efficiency and sustainable cities. Partnerships with other organisations are at the heart of the Government's sustainable development approach.5

How society and demography affect our business

Good-quality housing contributes positively to New Zealanders' sense of wellbeing, health, and educational and social development. It provides a stable base for beneficial community engagement, developing community links and networks. Well-built commercial buildings provide workplaces that are safe, healthy and encourage productivity, as well as spaces for recreation and business that meet the needs of the community.

The population of New Zealand has grown at an average rate of 1.4 percent per year between 1951 and 2004.6 During that period net migration into the country has influenced trends in the residential housing sector. This has led to a significantly increased demand for housing, especially in Auckland. The demand is expected to continue in the short term with a continued flow of migrants, albeit at a slowing rate.

The population is projected to continue growing slowly from 4.113 million in June 2006 to 4.246 million by 2011 (a 3 percent increase). There will be significant changes in the age structure of the population over the next 40-50 years, with more older people. The median age of the population is, for example, forecast to increase by 10 years (from 35 to 45) over the period 2001 to 2051.

The ethnic make-up of New Zealand is also changing. Maori, Pacific peoples and Asian communities within New Zealand are growing at faster rates than the general population. By 2016 these groups will constitute an increasing proportion of the workforce. The Maori population, for example, is expected to increase from 16 percent of the total population in 1996 to 21 percent by 2051.

As the New Zealand population ages and the workforce changes, the construction and housing sector will need to respond to its needs.

How globalisation affects our business

New technology, building systems and products, and building standards and design are increasingly international in nature. The effects of globalisation on the building and housing sectors are also felt indirectly through varying exchange rates and international price movements.

In spite of the complexity that globalisation brings, efforts toward harmonising building standards are occurring in Europe with the role of individual countries' national standards bodies being redefined. As in Europe, diversity of population, differing legal jurisdictions, and varying pricing and taxation regimes make harmonising standards in the Pacific region challenging. The intent of harmonising standards is that no substantial differences exist in safety standards between and within nations.

How the labour market affects our business

The strong domestic economy has put increasing demands on the labour market with the unemployment rate being at a 20-year record low of 3.4 percent,7 with the seasonally adjusted unemployment rate being 3.6 percent for the December 2005 quarter. The shortage of skilled labour has helped increase wages over the 2004/05 period.

The increasing output of the construction industry has increased employment from around 115,000 in the late 1990s to approximately 165,900 in December 2005, according to the Statistics New Zealand's Household Labour Force Survey (see Figure 1).  

Figure 1: People employed in the construction industry.

Information on vacancies collected by the Department of Labour shows a decline in advertised vacancies for building tradespeople. The Trades Vacancy Index, measuring numbers of jobs advertised for tradespeople, has fallen by 14 percent from December 2004 to December 2005. This indicates improved recruiting conditions for employers in what appears to be a slowing construction sector. Skills shortages are, however, still an issue.

How new technology affects our business

New technology will continue to influence building and construction design, systems and products. It has ongoing implications for both our regulation of the building sector and the skill development requirements of all personnel involved in the sector.

One of the most significant applications of technology in the construction and housing industry is increasing homeowners' sense of security by using more technologically advanced building materials, and applying sustainable design and integrated systems for users' particular needs.

Users' needs include adequate ventilation, accessibility to and from the building, fire safety and earthquake-proof design. Buildings need to accommodate the needs of those with disabilities or reduced mobility and allow them easy movement in and out of the building or within the floors of a building. Technology can help by providing amenities that reflect users' special needs, and for those who want to work from home.

 1 New Zealand is a signatory to the International Covenant on Economic, Social and Cultural Rights (1996).

 2 Statistics New Zealand.

 3 The Reserve Bank of New Zealand,

 4 Organisation for Economic Co-operation and Development, Recent House Price Developments: The Role of Fundamentals, ECO/CPE (2005)12.

 5 Department of Prime Minister and Cabinet, January 2003.

 6 Statistics New Zealand, National Population Projections 2004-2051.

 7 Reserve Bank of New Zealand, Monetary Policy Statement, December 2005.