Analysis: Building plan data point to people downsizing

THE REAL (at constant 2015 prices) value of building plans passed by larger municipalities in the first four months of 2017 declined by 21.9 percent year-on-year (y/y).

All three major building categories in terms of building plans passed showed declines, but the largest drop was among non-residential buildings such as factories, offices and shopping malls as this sector is dependent on business confidence. In the second quarter, the Bureau for Economic Research’s/Rand Merchant Bank Business Confidence Index collapsed to 29 points from 40 points in the first quarter. That meant that seven out of every 10 respondents are despondent about prevailing business conditions. The last time we saw such despondency was during the 2009 recession.

This sector plunged by 42.9 percent y/y, while residential buildings plans passed dropped by 16.9 percent y/y. This means that fewer houses will be built in future. As a result homeowners will add to their existing homes, so additions and alterations only slipped by 4.5 percent y/y.

Work cut

Building plans passed is the first step in the construction process, so architects and quantity surveyors have seen their work cut, which is reflected in the business confidence in the construction sector.

Building sector confidence slipped to 36 points in the second quarter from 42 points in the first quarter due to a further sharp deterioration in business conditions for non-residential building contractors, who are reliant on developers willing to invest in shopping malls and factories.

The good news is that the building plans passed last year are now being turned into bricks and mortar this year. That should boost employment in the construction sector together with the public sector’s infrastructure building of new dams and power stations, which are not captured in the building plans data of Statistics South Africa (Stats SA) as they do not take place inside municipalities.

Already the Stats SA Quarterly Labour Force Survey showed a 143 000 or 10.5 percent y/y increase in the first quarter to 1.505 million workers in the construction sector. This recovery in the construction sector cannot unfortunately be confirmed by cement sales data.

What is evident if one drills down into the detail of building plans release is that people are downsizing in terms of accommodation. So the number of houses of less than 80m² completed in the first four months of 2017 increased by 13.3 percent y/y in the first four months of 2017 to 4 940, while the number of flats and townhouses finished surged by 37.1 percent y/y to 5 623, but the number of houses larger than 80m² handed over to their owners fell by 20.4 percent y/y to 2 961.

Not all provinces build equally. The Western Cape, which houses 11.5 percent of South Africa’s total population, saw a 77.3 percent y/y surge in the number of houses of less than 80m² to 2 144. At the other end of the spectrum, the Northern Cape only saw a single house of less than 80m² completed.