Access To Finance The Major Barrier For Construction Sector

Wellington, Wednesday 14 August 2024: Increasing confidence in the ability to access finance for housing and major infrastructure like schools and hospitals is critical to boosting New Zealand’s productivity and lifting the building and construction sector out of its slump.

Over 1,000 homeowners, and 300 builders took part in the annual State of the Sector survey which asked respondents about the experience they had when building, thoughts on the economy, critical issues facing the sector and overall sentiment towards the year ahead.

Access to finance was flagged by 83 percent of respondents as the biggest challenge for building and construction in the current environment. This is the second year it has sat in the top three issues and was followed closely by lack of consumer demand (75 percent), and the rising costs of construction (74 percent).

Chief Executive Officer of Master Builders, Ankit Sharma, said there’s no denying the current economic conditions have resulted in a slowdown, but we need to start laying the foundations for the recovery.

“Confidence is the key to our recovery. We need businesses and clients to have the confidence that they can access money for projects, because it sends the signal that the economy is going to recover, and that it’s worth committing to the building process.

“Government has released a series of policies to address the housing shortage and the perennial issue of affordability, which will help in time. However, the highly conservative approach taken by the banking sector is a major barrier, especially given we can see the relief that an ease in interest rates will bring,” Sharma said.

Despite the challenging environment, the State of the Sector survey revealed rich insights about those who have recently been through the build process. The overwhelming majority reflected that their experience had been “smooth”, “exciting” and “excellent”.

The two largest concerns heading into the build process were how price escalations would be managed (48 percent) and project delays (18 percent).

“It’s incredibly encouraging to see that most homeowners report positive building experiences. We know that many builders are very good at developing strong and positive relationships with their clients. Communication and transparency are critical, and having honest and open conversations about the risks and budget contingencies can help ease concerns, and further encourage confidence.”

The State of the Sector survey also asked consumers about what information they’d sought from their builders at the outset of their build. Around 90 percent of those conversations were in relation to building guarantees.

“Given the recent industry challenges and failures, our Guarantee has proven critical in protecting homeowners and their investments. They are also a critical part of the equation for lenders, who are looking to protect their investment,” Sharma said.

The State of the Sector also shines a light on the incredibly challenging and competitive operating environment, which has resulted in companies contracting for a wider range of work, seeking efficiencies in their businesses and looking for ways to better market their services.

This year’s results show businesses are working hard to adapt to the changing market conditions. 76 percent of the sector said as a result of market changes, they have been forced to cut overheads, with more than 50 percent of these businesses making the tough decision to include staffing numbers in these reductions. Just under half (43 percent) have looked to new markets to build out their pipeline of work, and more than 50 percent put a concerted effort into increasing their market presence through advertising and sales.

“We recognise this is a challenging economic climate and a lot of our members will be feeling the squeeze. Tough times, build tough businesses and the results show the sector is adapting, finding efficiencies and diversifying their business models. It highlights we have matured as a sector, and with the right mechanisms and support we can become even more resilient,” Sharma said.

There are also green shoots of optimism appearing. Nearly half (46 percent) think overall economic conditions are likely to improve within the next 12 months, even if only 38 percent think it will flow into improvements for building and construction.

“Ongoing support for the sector is crucial. We have been open and honest with government about wanting to work with them to find innovative solutions, and we must keep developing strategies to sustain the sector during tough times. Whilst winter may be here, we believe summer is coming, and it’s fuelled by a strong demand for housing and infrastructure.”

Last month, Master Builders unveiled its sector leading ‘Good Contracting Guidelines and Principles’ resources at Parliament. This is all about assuring risk is allocated appropriately at the planning stage, especially when a contractor is initially involved in pre-construction work.

“Through this initiative, we can improve productivity and foster more collaborative relationships between client and contractors from the start of the process. We were delighted the Minister for Building and Construction, Chris Penk was able to attend, and for his endorsement of the guidelines and principles – specifically with how they could potentially be applied to many government priorities, including some procurement practices.

“It is also imperative that the Government get back to building. The sector, across commercial and residential need more certainty in the pipeline of work.

“Master Builders will continue to look for solutions, and advocate for change on behalf of the sector. The results from this year’s State of the Sector shows the resilience of our people and companies. It also shows that they are doing a good job – making the build process a positive one for clients and homeowners. New Zealand has a shortage of quality housing and critical infrastructure including schools and hospitals. We can address this if we keep pushing forward with construction projects,’ Sharma said.

© Scoop Media