This week is the first in three years that Auckland building company owner Stacy Basham has not had any work on, and it is a sign of quieter times in the construction industry.
But the last few years had been “ridiculously busy”, and he was enjoying the time off, he said.
“More broadly, building work is a bit hit-and-miss at the moment. It would be fair to say that half the industry has work, while the other half is scratching around for more of it.
“So when I advertised for builders recently, I was inundated with responses.”
The construction industry was constantly evolving, with many factors at play, from interest rates to the weather, he said.
Auckland’s January floods had triggered a mini-boom for many builders in the region, for example.
“There are many opinions on where the industry is heading, but no one really knows. Economists talk about a downturn, and it might be true for new builds, but I’m not sure it’s true for the industry as a whole.”
His company focused on renovations, rebuilds, recladding and historic compliance work.
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There has been a sharp drop in forward orders in the construction sector, Westpac says.
He had a solid pipeline of work coming up, and that seemed to be the case for the contractors he worked with who had near future workloads that looked promising, he said.
“Usually in a downturn, good builders who are efficient, experienced, and have good reputations stay busy. It is the ones who aren’t that tend to be hit harder.”
Now, cost increases had started to slow with Covid restrictions and supply chain issues lifting, and labour pressures had eased, although the skill-set of the workforce could be better.
Basham said design and council consenting time frames and delays remained a hindrance, and even a deterrent for some customers.
“But lots of people are waiting for the election to see what happens, and what might happen then, who knows. A bit more stimulus for construction would be good though.”
After an extended boom where consents reached record levels, times have got tougher for the industry, particularly in the residential sector.
Businesses in the construction sector had seen a sharp drop in forward orders, with residential consent numbers down 12% over the past year, according to Westpac’s latest economic overview.
The bank’s economists expected home building activity would drop back over the year ahead, but said it would be a decline from elevated levels.
“With a large pipeline of projects in the works, that downturn is expected to be gradual, rather than a crash,” they said.
But in ANZ’s latest business outlook survey, residential construction intentions had lifted significantly, up to -24.1 in July from -51.5 in June. That put them at the highest level since February 2022.
Baker Tilly Staples Rodway Christchurch business adviser Dorian Crighton said that six months ago there was a very different tenor around construction, but there had been a marked uptick, especially in Christchurch.
His focus was on Canterbury, and in that region industry challenges were dissipating, he said.
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Industry confidence is very low, Baker Tilly Staples Rodway’s Dorian Crighton says.
“Building product price increases have slowed on many big ticket items, for example. Steel and wood prices were up about 11% last year, and they have now come back to about 4%.
“Labour shortages are less of an issue at this point, although there could be another spike there as more demand comes into the market.”
His clients were seeing a good amount of work coming through, although lag times were a challenge.
But there were many smaller companies in construction, and they were the ones that suffered the most in a downturn, he said.
“In Christchurch, Williams Corp and Wolfbrook created their own market in the townhouse space, and they soaked up lots of smaller contractors.
“That market has slowed, but there is still greenfield development going on, with constraints around land easing recently.”
There had been a downturn from the market peak, and when overlaid with the sharp rise in interest rates, inflation, falling house prices, and the Credit Contracts and Consumer Finance Act, industry confidence had been eroded, Crighton said
“Confidence levels are about the same as the global financial crisis, but the reality is not the same. I’m just not seeing a GFC like situation.
“But the market has been settling, and people are getting used to the new environment, as opposed to six months ago.”
It was a tough environment, and some businesses would exit the industry or become insolvent, but it was not as bad as many thought, he said.
“Certainly not in Christchurch, which is in a bit of a bubble. There’s still large infrastructure projects, such as the stadium, the pool, and the Otago University campus redevelopment, going on, along with Kāinga Ora builds.”
It was the residential building sector that was most affected by the current downturn, Master Builders Association chief executive David Kelly said.
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Consistency is needed to tackle construction’s boom-bust cycles, Master Builders chief executive David Kelly says.
Commercial construction remained strong and there was momentum in Kāinga Ora builds, and that meant the downturn was not across the board, he said.
“It is hard to predict whether it will be a V or W shaped downturn, or how long it might continue, but the next six to nine months is going to be difficult for the residential sector.”
There were encouraging signs, with the rate of building product inflation half what it was last year, and the Reserve Bank’s signal there would not be more significant moves in the official cash rate.
It was a more certain environment, and that allowed homeowners to think it might be a reasonable time to build, he said.
“Consents have declined, but the industry was stretched when they were at record highs. The level we were building at was not sustainable, and it put many builders under too much pressure.
“That is the problem with the traditional boom-bust cycle in construction: builders are either flat out or they don’t have any work at all.”
To avoid that this downturn, and to prevent boom-bust cycles in future, the government had to keep spending on its own building and infrastructure projects, he said.
“Keeping that pipeline going during downtimes helps level out the boom-bust cycle, and ensures consistency for the industry.”
It was one of the recommendations in Master Builders’ new election manifesto which detailed what it would like to see from the next government.
Master Builders also wanted housing to be designated as critical infrastructure, the consenting process to be streamlined, and an all-of-government standardised procurement model to be introduced.
The Apprenticeship Boost Scheme should be made permanent, more flexible immigration settings put in place, and new funding models for housing and infrastructure should be an option.
Kelly said the sector’s issues were well known, and there were solutions, but they would take time and consistent action across multiple governments.
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