Throughout the March quarter the Manawatū region has continued to perform strongly, however uncertainty abounds around the national economic forecast.
Highlights for the quarter ending March 2022 include increased tourism and consumer spending, continued employment growth, and record high non-residential consents.
Yet on the flip side, house values continue to ease, sales have declined, and residential consents also experienced a drop.
“Our strong food production and public sector industries have proven very resilient to the impacts of COVID-19 over the past two years, and as such, household incomes have been less affected than many other parts of New Zealand,” says CEDA CEO, Jerry Sherman.
“Growth in the region over the next year will be supported by factors such as the significant increase in the Budget for health spending, transfers beginning for Air Force personnel from Whenuapai, high levels of employment across all sectors, and an increase in the workforce on Te Ahu A Turanga: Manawatū Tararua highway, along with work on the second stage of the Mercury Energy wind farm is continuing and now scheduled to finish in mid-2023.”
However, it is likely the coming year could be tough for many.
“While there are plenty of positives, there is uncertainty on the horizon,” says Jerry Sherman.
“It is clear the June quarter will reflect more accurately the anticipated impacts of subdued consumer confidence in our region in the wake of inflation and interest rises.”
While the Omicron outbreak is likely to have had an impact on Manawatū’s economic performance, that impact has been buffered by our strong food production and public sector industries. Annual GDP was provisionally up 6.8% for the year to March 2022, compared to a year earlier. Growth was higher than in New Zealand (5.2%).
Manawatū’s GDP grew 2% in the March quarter, which is no mean feat considering fractured supply chains, accelerated inflation, higher interest rates, higher levels of absenteeism due to COVID-19 and an 80% decline in delegate days for business meetings, conferences and other events in the region due to the COVID-19 Red Traffic Light setting.
Manawatū District Council senior economist, Stacey Bell believes our regional resilience can be attributed to our strength in the food production and public sector industries.
“A substantial proportion of our workforce is in public employment such as health, defence and local government. That along with the outlook for food producers looking reasonably favourable, puts us in a good position to weather the economic storm over the coming year.”
Consumer spending remained strong in the region, with an increase of 9.3% over the year to March 2022, compared with an increase of 6.1% in New Zealand. Retail prices increased by 5.6% in the year ending March 2022.
“Apart from periods of widespread lockdown when Palmerston North’s position as a regional retail hub was impacted with a spending drop at similar levels to the rest of New Zealand, overall, our industry structure has buffered the regional economy from the worst impacts of COVID-19,” says Stacey Bell.
The largest sectors for spending in the region were groceries and liquor ($570 million), home and recreational retail ($438 million) and fuel and automotive ($268 million).
Domestic tourism continues to hold up well in the Manawatū region with total tourism expenditure increasing by 12.8% in the year to March 2022, compared with an increase of 7.1% in New Zealand. Total tourism expenditure was $308 million, up from $273 million a year ago.
“We were fortunate in that restrictions eased over the summer months and our visitor economy has been much less impacted from lockdowns when compared to the top half of the North Island,” says Janet Reynolds, Destination Development Project Manager, CEDA
With that in mind, it is important not to read too much into the tourism growth numbers.
“The values for the year to March 2021 were affected by the initial COVID-19 lockdown in 2020 and the high growth in inflation in the year to March 2022,” Peter Crawford, Economic Policy Advisor, Palmerston North City Council says.
“Fuel also accounts for nearly forty percent of the increase in tourism spending in the past 12 months with higher food prices the second largest contributor.”
International card spending increased by a staggering 92.4% in the region to $19 million for the period ending March 2022. However MBIE is unable to identify the amount of spending on international cards by New Zealanders returning from overseas, so is unable to distinguish between spending by visitors and returning residents.
Employment for Manawatū residents was estimated to be up 2.5% for the year to March 2022. This growth was lower than in New Zealand (2.7%). An average of 56,418 people living in Manawatū were employed in the year to March 2022. This excludes those who are self-employed.
“The labour market remains tight, with employers struggling to fill roles across all sectors and levels,” says CEDA Business Development Manager, Nats Subramanian.
The days of skyrocketing house prices in the Manawatū region are showing signs of abating in recent months. House price growth is down from a recent high of 39% in the June 2021 quarter. House sales also continue to decline, down 6.1% in the period to March 2022 this year.
“House values are falling and are expected to continue to fall over the next year. Declining house values will impact on some sectors of the economy more than others,” says Peter Crawford.
Past increases in house values have allowed households to finance car purchases, renovations, and other high value expenditure, so it is likely growth in household expenditure will be more constrained.
“There will be an impact on household spending from higher interest rates, but some of that will be offset by higher interest rates for savers.”
Greg Watson, of Watson Integrity Real Estate can see the effect of rising interest rates and other factors on the housing market.
“At present, when compared with last year, there are almost triple the number of listings on admittedly what were low numbers. There are also noticeably less people at open homes with the changes to Loan to Value Ratios, Debt to Income Ratios, rising interest rates and inflation. All have had a major effect in removing many first home buyers and investors from the residential market, creating an environment for the foreseeable short-term future where vendors are having to lower their expectations in some cases by $50,000 to $100,000 when compared to late last year.”
While it’s difficult to predict the effect on house prices over the next twelve months, Greg believes the impact will not be as severe as elsewhere.
“The rate in which growth had been occurring wasn’t sustainable. It is likely the annual house price growth will continue to come back a bit more from its peak, but this will be relatively minor compared to other regions.”
“Many strong regional projects and immigration of associated staff and personnel will continue to see the population grow. This means that there will soon continue to be an under supply of housing compared to future needs.”
There were 714 dwelling consents issued in Manawatū over the year to March 2022, a decrease of 5.7% compared with the same 12-month period a year before. This compares with an increase of 24% in New Zealand over the same period. While this is a fall from the record high number of dwelling consents issued in 2021, it is still above the five year rolling average of 648 dwellings consented per year.
The decline of record highs can be attributed to some delays in consents being lodged with council for several large multi-unit housing developments. There are also signs of some builders facing constraints due to a shortage of building materials, along with a decline in the number of relocatable houses transported to other parts of the lower North Island.
The supply of sections will be eased when titles become available for the Rangitāne o Manawatū Ashford Ace-Stirling Cres, and City Council Tamakuku Terrace subdivisions.
The drive for non-residential consents continues with an increase of 4.8% over the past year to March 2022. The value of consents increased by 13.6% in New Zealand over the same period.
The value of non-residential consents issued over the past year is $233 million, a decline from the peak of $255 million in the year to December 2021.
“This decline in value follows record high consents issued in 2020 and 2021. There will be further declines as large Linton and Ohakea consents from last year fall out of the 2022 numbers,” says Peter Crawford.
“Large consents are expected for the Manukura High School and new mental health unit at Palmerston North Hospital, which will keep consent levels high, but below the 2021 peak.”