Construction Sector Reaches Critical Point And Calls For Change

A majority of builders believe the economy will deteriorate further over the next 12 months, with some order books already in critical diminishment, as the boom-and-bust cycle continues.

According to Registered Master Builders’ annual State of the Sector survey released today, 52 percent of the sector say they have a steady or strong pipeline of work on the horizon. However, on the other side, this means 48 percent are seeing a decline, with 12 percent experiencing a critical diminishment of work. The survey also found 66 percent believe the crunch isn’t over for the country and that things are set to worsen.

Over 1,000 sector participants and homeowners (who had built in the past two years) responded to questions about their experience building, the economy, critical issues they were facing, and their outlook for the sector.

Master Builders Chief Executive, David Kelly, says it has been a difficult ride for the sector, so people are feeling wary.

“These boom-and-bust cycles are completely unsustainable, and they impact our sector more than any other. For 50 years it’s been a case of ‘what goes up, must come down,’ and in that cycle we lose good experience, good people, and good businesses.

“The resilience of our businesses has been tested for a long time, and they’re having to work hard to find demand. Whilst it’s heartening to see a portion are keeping a steady workflow, they’re having to adapt to the current climate by reducing overheads, focussing on sales, and marketing and looking to new markets such as renovation work,” Kelly says.

A key result from the survey reveals 88 percent of respondents believe the rising cost of construction remains the biggest issue facing the sector for the second consecutive year. Second to that, 83 percent of the sector have flagged a new issue – finance, which is unsurprising given inflation and rising interest rates.

“Finance and customer demand go hand-in-hand. With inflation and interest as high as they are, people are thinking twice about whether now is the right time to be building a home. The consequence of this is that it acts as a bit of a handbrake for the residential construction sector.

“This is particularly a concern for those developments that include more affordable housing options. It’s a key part of the market where the sector needs support to build, or our country’s housing woes will get worse. The Government has provided mechanisms to support the sector the sector, and we would like to see these programmes extended as we work through the current economic cycle. This is a key issue outlined in our election manifesto,” Kelly says.

Government regulation (65 percent) and council consenting (50 percent) were other issues highlighted by the sector in the survey. Interestingly, woes with the supply chain have fallen away dramatically in the last 12 months dropping from 95 percent to 34 percent.

“We know at one point; some key building materials became almost impossible to obtain. Thankfully, we are now starting to look over our shoulder at that issue.

“As for the Resource Management Act – it simply hasn’t worked for a long time. Our manifesto makes it abundantly clear that the proposed reforms will do nothing to reduce complexity.

“We need a system that allows us to focus on the areas of critical risk, for instance, where there is an impact on sensitive natural environments, rather than a one-size-fits-all approach,” Kelly says.

The survey also reflects a desire from the commercial sector to see some efficiencies put in place around procurement.

As market conditions deteriorate, so too can contract negotiations. A third of respondents felt risk and liability provisions had got worse.

“Procurement is an area where Government can lead. They are already the sector’s largest client, but we want them to also be a smart client. We need strong political leadership across ministers and officials to continue work currently underway,” continues Kelly.

When it comes to finding skilled labour, it’s a hot-button issue that’s been raised in State of the Sector findings since 2016.

Consistent with last year, just under two-thirds of respondents are employing apprentices and nearly half of those respondents said the Government’s Apprenticeship Boost Scheme was a factor in their decision to do so.

“The sector’s uptake of the Apprenticeship Boost Scheme reinforces the need to make it permanent. The sector can’t afford to be a political football – we need policies to endure political cycles no matter which party, or parties are at the helm. We’ve made this explicit in our election manifesto for 2023,” Kelly says.

Views on immigration have also improved. Last year, only nine percent could bring in the skilled workers they needed. This has now increased to 48 percent, with the remaining 52 percent saying the process remains too drawn out and costly.

“It’s not all doom and gloom – but there are plenty of hefty issues besetting the sector. With an election on the horizon – it’s a good time to be heard and a good time for change,” Kelly says.

The annual Constructive Forum is an industry led effort to enhance collaboration, build resilience, and ensure a vibrant and sustainable sector that delivers for New Zealand. Its purpose is to bring the entire supply chain together, from Government, finance, land, design and build, and key enabling sectors such as research, training and regulation to work together to develop strategies that will help the sector collectively emerge more resilient.

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