"Another month of very low consent issuance adds additional down side risk to our already weak construction outlook for coming months.
"The extent of damage in Canterbury means that a significant amount of construction activity will take place in the years ahead and this is starting to show up in the Canterbury data."
Figures released by Statistics New Zealand showed that seasonally-adjusted consent issuance rose 2.3% in May compared with April. However, the May issuance was 22% lower than in May last year.
A high number of apartments consents boosted the monthly lift - 66 units in May against 34 in April.
Ex-apartment consents lifted by a more modest 1% in May.
Residential consents issued in Canterbury lifted 22% in May compared to April with a large increase in earthquake activity noted by Statistics NZ.
In Canterbury, earthquake-related consents totalled $28 million in May. This was made up of $9 million of residential consents and $19 million of non-residential consents. Sixty-eight new dwelling consents issued in May related to the earthquakes, which represented more than 75% of all new dwelling consents issued so far related to earthquakes.
Mr Tennent-Brown said the rate of dwelling consents issued throughout New Zealand annualised to about 12,000 dwellings.
If consent issuance remained at that low level, there was a significant risk of a housing shortage in areas where the population was growing and more homes would be required in years ahead.
"The low level of consent issuance also provides a grim indicator for residential construction over 2011."
While expecting residential building consents to increase gradually this year, construction consents for at least 20,000 dwellings a year would be necessary to satisfy housing demand during the next few years, he said.
Forsyth Barr broker Tony Conroy was encouraged by the rise in the number of new dwellings (ex-apartment) above 1000, at 1073.
"But this is still a low number and well below the 1500 monthly target average required to achieve annual consents of 18,000 dwellings.
"We expect residential dwelling consents to show further growth over the remainder of the year but activity related to Christchurch is a 2012 story and highly dependent on the number and magnitude of the aftershocks subsiding."
There had been a "good bounce" in non-residential building consents in May as the start of the Rugby World Cup approached. The level of non-residential building consents and activity was at risk of a sharp drop-off. Further out, non-residential consents were expected to begin a period of sustained recovery heading into 2012.
"Finally, we are seeing a turning point for consents but the timing of a substantial uplift from the Christchurch region still feels many months away and this is consistent with the view being communicated by the construction companies, including Fletcher Building."
Fletcher Building's share price had fallen to $8.62 and Forsyth Barr's reduce recommendation was under review with a positive bias, Mr Conroy said.
Forsyth Barr was likely to downgrade its near-term earnings forecasts for Fletcher Building for 2011 and 2012, while the mid-cycle projections for 2013 would be maintained.
