What will the building boon do for GDP?

June 5th, 2014 at 10:00 am by David Farrar

Stats NZ reported:

Both residential and non-residential building activity volumes grew strongly in the March 2014 quarter, Statistics New Zealand said today. 

“Overall building activity increased 16 percent in the March 2014 quarter,” business indicators manager Neil Kelly said.

Non-residential building activity volume grew a seasonally adjusted 17 percent, just ahead of 15 percent growth in residential buildings.

This is great. We need more homes, and they are being built. Expenditure on new residential buildings are up 58% from two years ago. And residential building consents up 30% on a year ago.

Westpac comments:

Instead, it appears that the country went on a building spree worthy of the characters in ‘The Lego Movie’. Building work put in place saw the biggest quarterly increase on record (going back to 1990 by volume and 1981 by value). The level of activity is now about 5% below the peak reached in the middle of last decade’s boom, and is on track to exceed those levels during this cycle, with the post-earthquake rebuild in Canterbury still ramping up.

This was a huge surprise relative to our forecast, with major implications for the March quarter figures, to be released on 19 June. The construction sector contributes about 5% of GDP (though that includes infrastructure work, not covered in today’s release), so a 10% upside surprise for the sector equates to a 0.5% upgrade to our GDP growth forecast, all else equal. Until now we felt that there were modest downside risks to our forecast of 1.1% GDP growth; now the risk appears to be to the upside.

We await the GDP results with interest.

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14 Responses to “What will the building boon do for GDP?”

  1. hj (7,033 comments) says:

    What will the building boon do for GDP?

    What will the building boon immigration do for Per capita GDP?

    Ans = nothing.

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  2. lazza (381 comments) says:

    Based on admittedly fallible “gut feel” … and the NZ-wide evidence of my own eyes, (just done Nth Cape to Bluff), I have a feeling that NZ Inc’s current GDP % increase, is likely to be well above accepted (bank-economist) guesses … of “in the low threes”.

    From what I see, even leaving out the ChCh job, we are heading for around 4.5 to 5% come year-end 2014.

    Add ChCh to this mix and it will! be … “over 5%”.

    Read it and weep Cunners ….

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  3. hj (7,033 comments) says:

    Could be a case of this?:

    While immigration played a key role in house inflation in the three years after 2001 (Reserve
    Bank 2007), it is unknown to what extent on-going immigration continued to drive price rises.
    The housing boom has meant good profits for many New Zealand companies supplying
    materials and building services, but it implies investors would rather invest in their country’s
    homes rather than its businesses (Bollard 2005). The high returns for property has attracted
    finance and reduced the capital available for productive investment (Moody, 2006). The
    consequence is investWhat will the building boon do for GDP?ment is going in to industries with limited capacity to increase per capita
    incomes. For example, real estate and building are domestically bound and do not have the
    market potential of export industries. They also have less opportunity to increase productivity
    through new processes and products. The irony is, as these sectors grow, they have incurred
    skills shortages which in turn has increased demand for skilled immigrants. The Department
    of Statistics ‘Long Term Skill Shortage List’ of 28/3/2006 includes carpenter/joiner, plumber,
    electricians, fitter and turners, fitter welders; all indicative of a nation building its
    construction/property sector.
    There is a danger that a sector of the economy is being augmented that is totally reliant on a
    small domestic economy. Not only do these industries have limited potential for per-capita
    growth but ‘deriving growth via factor inputs such as labour places pressure on infrastructure
    such as transport and land supply, and ultimately have a further negative impact on growth
    (ARC 2005). Finally, as the sector gets larger, it gains in lobbying/political strength and can
    lobby for immigration regardless if it is the best interests of the economy as a whole. This
    could be seen in Canada where the development industry has lobbied hard for high sustained
    immigration levels (Ley and Tutchener 2001).

    DISCUSSION PAPER

    NEW ZEALAND IMMIGRATION POLICY

    Dr Greg Clydesdale (PhD)

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  4. EAD (1,129 comments) says:

    Here we go again – someone droning on about housing ngoes he or she drone on about how the stock market “always goes up”? Or does he/she point to GDP growth figures as proof of an economic recovery?

    After giving myself a self taught education. I walked back into an Economics 101 at Otago “Uni” after having graduated in the Sam subject 3 years prior. I walked out after 20 mins. Half of what they talked about was obvious and the other half was obviously propaganda.

    Half of what I read in the papers is obvious and the other half like the above is complete propaganda. “House prices always go up”… oh really? I suppose, theoretically, you could say it is true. Zimbabwean house prices went up 1,000,000,000%… in Zimbabwe dollar terms.

    The fact of the matter is, house prices and “GDP” would not go up much, at all, in the long term, without monetary inflation. It’s all a mirage, based on inflation.

    GDP is my personal favourite as though it is a) something which you can even calculate b) a true indicator of the financial health of an economy and c) a government statistic that can be trusted. Frank Shostack, a warlock of Austrian Economics (the only school of economic thought with its basis in reality), tells it like it really is:

    “We can thus conclude that the GDP framework is an empty abstraction devoid of any link to the real world. Notwithstanding this, the GDP framework is in big demand by governments and central bank officials since it provides justification for their interference with businesses. It also provides an illusory frame of reference to assess the performance of government officials.” – Frank Shostak – http://mises.org/daily/770

    Do you want to see what actual GDP “growth” looks like? China has huge GDP growth. What an economic miracle! Here is how they do it:

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  5. EAD (1,129 comments) says:

    Video to the above (and excuse the grammar above as I was unable to edit….)

    http://m.youtube.com/watch?v=rPILhiTJv7E

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  6. lazza (381 comments) says:

    EAD … fair enough.

    GDP is a good starting place but.

    Imagine an economy without this (or any) quantative benchmark … how would you know?

    Though to give GDP some mystic significance as for any macro-measure such as this, is plainly wrong … you might try modifying GDP for the effect of externalities … generally they are negatives such as the smoke/smog haze over Bejieng for instance.

    So now to En Zed.

    I can’t think of any real downside externalities to the raw GDP measure here … can you?.

    If you want to shoot down GDP as a measure then please provide an acceptable “RECOGNISED” effective alternative … a measure without any sniff of the cock-eyed opinionated BS please.

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  7. EAD (1,129 comments) says:

    Hi Lazza,

    This a copy/paste section from the linked blog. It can give a quicker (and more humorous) account of the GDP fallacy than me!!
    http://dollarvigilante.com/blog/2014/5/30/the-truman-show-us-economy-real-gdp-numbers-show-9-annualize.html

    “Furthermore, since GDP tracks consumption it is ridiculous to say that an economy grows when people consume more. This makes sense to even small children who understand that you “grow” or get richer by saving not spending.

    The following joke perfectly explains the ludicrosity of GDP.

    Two Keynesian economists, John Maynard Keynes and Paul Krugman, were walking down the street one day when they passed two large piles of dog shit.

    Keynes said to Krugman, “I’ll pay you $20,000 to eat one of those piles of shit.” Krugman agrees and chooses one of the piles and eats it. Keynes pays him his $20,000.

    Then Krugman, feeling richer, says, “I’ll pay you $20,000 to eat the other pile of shit.” Keynes, feeling bad about the money he lost says okay, and eats the shit. Krugman pays him the $20,000.

    They resume walking down the street.

    After a while, Krugman says, “You know, I don’t feel very good. We both have the same amount of money as when we started. The only difference is we’ve both eaten shit.”

    Keynes says: “Ah, but you’re ignoring the fact that we’ve increased the GDP by $40,000.

    That is really all you need to know about GDP… it’s all dogshit”

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  8. thedavincimode (6,803 comments) says:

    EAD

    Dismissing GDP as dogshit makes as much sense as accepting GDP as the be all and end all in assessing the health of an economy. It doesn’t purport to be any more than it is and without looking at the quality of spending and investment it is meaningless. To do so makes as much sense as inferring that the Christchurch re-build is equivalent to the Chinese real estate market.

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  9. Viking2 (11,491 comments) says:

    Well looking around the BOP in my daily travels about 40% of our growing GDP is not new builds but rebuilds. Schools, houses, factories that were badly built and leak and more that are being demolished because of new building codes. No increase in wealth but still add to that useless benchmark called GDP (i.e. God depends on Providence.)

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  10. trout (939 comments) says:

    There is an old saying that what is good for the building industry is good for High street. There are fewer jobs in the manufacturing sector because of import substitution but there are thousands employed producing services, materials, and products that support the building industry. The Ch.Ch. rebuild is funded by massive inflow of overseas money (probably many times the annual income from dairy exports) by way of reinsurance; money that is not sourced in NZ. All good for the economy. As an aside building activity and property prices are always bouyant during the term of a Labour government.

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  11. Fentex (986 comments) says:

    We await the GDP results with interest.

    They will likely show an expansion, but if on the back of cheap credit that fuels a boom and may be inflating a bubble, again, it may not be a good thing.

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  12. G152 (351 comments) says:

    The reality is that to build lots of houses is going to take lots of trades, tradesmen and apprentices.
    And. when the boom is over there are going to be a whole lot of unemployed people and a great pile of useless plant not suited to anything else

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  13. ross411 (842 comments) says:

    hj (5,971 comments) says:
    June 5th, 2014 at 10:21 am
    Could be a case of this?:
    … [lots of bland text to read] …

    TLDR.

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  14. V (720 comments) says:

    How this is reported as news is beyond me. With Chch still rebuilding post an earthquake you would expect building activity to be high. These economists are overpaid.

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