A year out from 2023’s general election, Leader of the Opposition Christopher Luxon gave a keynote address outlining his thoughts on the construction sector at the Registered Master Builders Association-led Constructive Forum 2022 held in Rotorua in August.
Here are excerpts from his speech, and responses to some of the questions from the floor during the Q&A sessions that followed.
What I thought I’d do today was set out National’s plan to unleash the New Zealand economy, and the crucial role that construction will play in that planning.
I have to say it’s been a challenging two and a half years since Covid, with further challenges on the horizon over the next 12 months. And I believe it’s essential that as we go into an election year, that we have a clear path to sustain growth for the next 10 years. And today I want to share that plan with you.
But let me begin by just acknowledging the remarkable contribution made by the construction sector to the country’s economy. You employ nearly 300,000 people, and you contributed nearly 9% of New Zealand’s GDP last year — that’s around $30 billion. And around one in every eight New Zealand businesses are involved in construction in one form or another.
So the sector has had a post-Covid boom. There’s been a record number of consents for new dwellings for the year to February, nearly 50,000. But I know that it hasn’t been smooth. Certainly, as a sector, you’ve been hit by labour shortages and material shortages. And now the economy is coming off the highs of monetary fiscal stimulus, with the potential for significant consequences for the construction sector.
And being completely honest, if National is elected next year, we are going to inherit a mess and we will have a big turn around job to do. This is a big-taxing, big-spending government that has made large financial commitments, and is forecasting deficits for the best part of the next three years.
The Crown debt has doubled since 2017. And with all that spending, the Government has struggled to deliver effective services and better outcomes in almost any area you care to name.
And despite the massive amounts of spin, Kiwis know that the economy, health, education, housing and crime are all going backwards. So it’s probably fair to say the bang for buck was not one of this government’s hallmarks.
And underneath all of that printed money, the real economy is struggling, squeezed first by closed borders, then home isolation, ongoing and unnecessary immigration controls, disrupted supply chains, and higher energy costs.
And, unfortunately, New Zealand’s economic problems run much deeper than just this government. To be honest, for decades New Zealand has suffered from what we call a productivity disease. And, in fact, we’re going backwards relative to other countries.
Because if we want a world-class health system, if we want a world-class education system, if we want to protect our environment, if we want to make sure we keep our communities safe, we need to be able to build a much stronger and, indeed, bigger and better economy.
I will give you a sense of that because it ultimately all comes back to depending on how much we can produce from each hour of work that we have.
Back in the 1950s, New Zealand had a GDP per person that was 125% of the OECD. Today, we are below that average. The bottom line is that Kiwis today now work for an hour to earn what an Australian earns in 45 minutes.
So the problem is we have low public and private spending on research and development. And we are closest to the lowest trade intensity amongst comparably-sized countries.
Looking at the overall picture, the problem is New Zealand is under-capitalised, over-regulated and isolated. And lifting productivity and incomes will be a major focus of the next National government if we’re elected next year.
If we’re going to fix productivity, we must understand where productivity comes from so we can target the bottlenecks holding us back, and then to fix them.
And there are a number of reasonably long-standing problems here, but I believe there are two crucial productivity bottlenecks. The first is the rules around how we treat capital. Because access to capital remains a huge challenge for New Zealand as a small, isolated economy, you would think that we’d be doing everything and whatever it takes to attract investment into this country. Instead, we have one of the most restrictive foreign direct investments, or regimes, in the whole of the OECD.
And while tax treatment of labour and our GST system is world class, our tax treatment of capital investment has been ranked amongst the worst in the OECD. And there’s a reason that global companies are increasingly attracted to Australia than New Zealand. And it’s not just the weather.
The second big productivity bottleneck is land supply. And this has two components. The first is how we finance urban infrastructure and, secondly, our planning system itself. And these are related problems that together, create huge barriers to urban growth.
We know that cities are the engines of productivity. And when it comes to productivity, and cities, bigger is always better. But we’ve stifled growth in our towns and cities with lots of red tape.
Planning is locking people out of our towns and our cities. And it’s not just the people in prescriptive rules that are the problem — it’s the time it takes to get consent.
Earlier this week, I visited a suburban hospital in Auckland. And for the last four years, it’s been trying to get permission to add a new ward to its existing property. And for all that time, the hospital’s expansion has been held up by the objection of a single neighbour. Even the local council has actually sided with the hospital, saying it’s important to do it.
So we have a planning system that actually allows a single individual to block new medical facilities in the middle of the pandemic. And it’s not just the rules that hurt, as much as the delays.
Many of you will be aware of discounted cash flow analysis, and you’ll know the profound effect that a four-year delay can have on an investment case. Such delays are a great way to deter capital and help produce a housing shortage.
Delays due to red tape also explain the boom-bust cycle in construction. Adding years to development means construction that was commissioned during a boom may only be delivered during a downturn, amplifying the peaks and the troughs of that economic cycle.
And, strikingly, resource consents have doubled in the last 10 years. And I’m not questioning whether council should plan their cities — they should. But delays and unnecessary rules don’t help the environment, and they produce some of the least affordable houses in the world.
But, on its own, planning reform is not enough. If we’re to unleash growth in our towns and cities, councils must be able to afford the infrastructure, including roads and transport and water, that is necessary for growth.
And under the current system, growth causes financial stress for urban councils. But I don’t blame councils 100%. For these challenges, I blame the system of funding and financing of infrastructure that they are forced to work with. And we need to fix that system because right now, financial bottlenecks are an enduring barrier to urban growth.
The biggest issue that I see affecting your construction sector is uncertainty. You’re dealing with a construction cycle with highs and lows that can have catastrophic effects on your industry. That cycle results in the loss of key people to places like Australia, talented individuals who may never come back. And that, in turn, affects the sector’s productivity.
And it’s a serious concern that more than 120 construction companies have failed so far just this year. More recently, I’ve been worried to see your industry has among the highest suicide rates, even higher than forestry and farming.
So how does the Government help you and your sector? National believes that government can support greater certainty by publishing a really clear project pipeline. Running professional and competent procurement processes. And thirdly, sticking to project commitments after they’ve been announced by doing the necessary work beforehand.The construction sector can then have the confidence to take on new apprentices.
National was also concerned about the effects of the Credit Contracts and Consumer Finance Act (CCCFA). And that just continues to hurt first home buyers who have been unable to commit to new buildings. And we are hearing stories every week of pre-committed sales falling through as banks re-evaluate their lending.
Another issue having a real impact on the sector is building consents. And the problem isn’t just in obtaining consents — it’s the time-intensive processes that are taking an incredible 80-plus building consent authorities to sign off work, and the additional time it takes to get those code compliance certificates.
And there are problems with delays around code compliance towards the end of development, when builders and developers have large amounts of their money tied up and they don’t get paid until the title is issued. And in many cases, it’s taking way too long to get the title issued.
Which raises the question of why we’re not using technology and IT much more in the consents and building inspections process. National will consider the use of IT and look at how we can push technology much harder, and how we can introduce new ways of competition into building consents.
National also wants to see the use of more innovative building materials and technologies coming into the country from overseas. We believe there should be a much more streamlined process to bring in proven products and systems that have met appropriate international building standards. The current approval process is just taking us way too long and costs way too much.
National Party spokesperson for Building and Construction Andrew Bayly has done a great job introducing a member’s bill which will allow certain plasterboard suppliers to be used in New Zealand which meets equivalent US or British standards.
And the recent supply chain issues have highlighted how vulnerable and reliant this country is on certain building materials. And with competition, I can tell you comes greater resilience.
National also sees exciting opportunities in prefabrication, and it’s encouraging to see how far this technology has developed in this country over the last decade. But for many years, New Zealand was an outlier and had low use of prefabrication, so it’s great to see it starting to take off.
So I guess that’s how National sees the lay of the land in terms of construction. But we’re going to continue to engage with the construction sector to make sure that we fully understand the challenges we’re facing to make the practical and pragmatic changes that we need to because the sector, not Wellington, actually has the answers to the challenges we have before us.
Before I close, I just do want to spend a little bit of time talking about our plan for prosperity and how the country can be so much wealthier as we go forward. And earlier this year, I outlined a five-point plan because over the last decade, I’ve gone around looking at other countries around the world that have the same population size as New Zealand, but are infinitely much more wealthier. And the question is, why is that the case?
The Israels, the Irelands, the Denmarks, the Switzerlands, the Singapores — why are they the same size population but much, much wealthier? And it all boils down to five things when you look at their story.
The first is that we need to build a world-class education system. And the reality in this country is that we have gone backwards. It is startling to say that 55% of New Zealand kids across this country today do not have regular school attendance. 100,000 kids in New Zealand are chronically truant.
That is just a moral and social failure. But it is also a future economic crisis. Because if we cannot get our kids to school and educated, we don’t have a shot at getting to higher value products and services, and you having the workforce you need to continue to develop and grow the sector.
The second big challenge we have is the infrastructure deficit, which has held back New Zealand’s growth. I think about things we’ve invested in, things like ultra-fast broadband, the Waterview tunnel, the Waikato Expressway. I spoke to a vet in the Waikato who said that she had been able to do four jobs a day — now she could do six or seven because she could jump on and off the Waikato Expressway and get to jobs in a much quicker, more efficient way.
One of the reasons I’ve come to politics is because we don’t have a good master plan. We don’t have a good sense of how we’re going to finance infrastructure. We don’t have regulation that supports it.
And then you’ve got to ask how good are we at delivering it when it takes us 15 years to have a conversation and to deliver something like Transmission Gully, when it takes us 20-plus years to talk about a central Auckland interceptor, when it takes us 25 years to talk about a simple six-and-a-half kilometre pathway from Panmure to Botany in Auckland.
And you think about John F Kennedy saying let’s go to the moon, and nine and a half years later having people landing on the moon, so you do wonder why we accept that we are so slow and so rubbish at actually delivering infrastructure in this country.
The bit that we need to do after education and infrastructure is we need to adopt a lot more technology. And we need to invest a lot more in research and development across all our sectors of this country. And that’s how we can develop higher-value products and services that we need to sell to the world and, therefore, raise our wages and salaries on the back of that.
The fourth thing is we need to work much much harder at making it a pro-business environment. We have introduced way too much red tape, too much regulation, too much cost, too much compliance. And so many people are spending 30% of their week worrying about paperwork rather than actually running their businesses at the moment.
We’re not liberating and freeing up our businesses. People are the lifeblood of our country. To get on, we’ve got to get government out of the way so they can get on and do what they need to do.
What you’re seeing is us becoming a country of bureaucrats rather than a country of can-do people who are positive, aspirational and ambitious, going forward and confidently into the world.
And fifth, we need to reconnect to the world, because we just don’t get rich actually selling stuff to each other within a country of 5 million people at the end of the world.
We have to go off and engage with the world and sell products to 7.8 billion people in 195 countries. And we want that international connection, because that’s how knowledge transfer comes into New Zealand as well. And that raises the performance of our firms here in New Zealand, because they’re learning from the best internationally.
So we need foreign direct investment. And we need to make sure our immigration settings are opened up so we can get talent in, and we’d be able to encourage our exporters to go out and to do business in the world as well.
I hope you’ve got a sense that we are going to make sure that productivity and, therefore, construction, is at the heart, and very much front and centre of economic planning as we go forward.
For 30 years or more, this country has been held back by a planning and infrastructure financing system that’s not fit for purpose, and National’s going to work incredibly hard to fix those bottlenecks to get our economy moving.
And I still think 18 months into my political career, New Zealand is the best country on planet Earth. We are going to get collectively what we deserve. And the question is, will we all work together — community, business, government — to actually overcome the challenges to realise the opportunities that we have in front of us?
Q&A:
Q: What changes, if any, would you make to immigration settings, particularly as they relate to the construction sector?
Luxon: I think this government’s had an anti-immigration setting before it even got to Parliament. And the reason is, they have a view that an immigrant coming in is taking a job away from a local person.
But we’ve got massive labour shortages, and huge amounts of low unemployment. And we’ve got 50,000 more Kiwis on the job seeker unemployment benefit. So the reality for us is that we believe that immigration should be opened up quite dramatically. That’s how we get knowledge transfer. It’s a very dynamic arrangement.
And then, ultimately, we’ve got to make sure we’ve got the accompanying infrastructure that supports it.
Q: What do you define as an affordable house?
Luxon: A lot of people will say it’s got to be within 35% of your income. But the reality is that we’re living in a place the same size as Great Britain and Japan with houses that are twice as expensive.
A lot of it comes down to the fact we’ve made it very complicated within this country. We’re often highly tactical, not strategic, and we end up with all these processes — the way we finance core infrastructure is different for transport, for roads, or hospitals, for lots of things. And as a consequence, all these things are getting in our way.
It was very interesting to me that after the Christchurch earthquake, we were able to actually go off and build great subdivisions with good infrastructure and good amenities, say, in Rolleston and around Rangiora, and we did that in a very short period of time.
And we ended up coming over the top with emergency powers, essentially, to get that building away. So we didn’t get tied up with RMA reform and other things. And lo and behold, we had house prices only going up 2% in Christchurch, with the rest of the country now closer to 10%.
So what I’m saying to you is how we do things inside this country, we make simple things horribly complex. And as a result, we trip ourselves up.
Q: What would National’s approach be to apprenticeship training?
Luxon: I think the Government’s approach has actually been quite positive. And we’re very supportive of what they’ve been doing in apprenticeship training. That’s a programme that’s getting outcomes, and I appreciate that people are feeling quite positive about it.
We’d want to continue to do more of that and continue to support that programme, for sure. And I think they deserve credit for it because I think they’ve done a good job.
The one thing I’d say though is if you’ve got a growth of 34,000 young people under the age of 25 on unemployment benefits, we are failing a generation of under-25s at the moment. We’ve got a risk of a real lost generation, so the first job is get kids to school.
Q: Te Pukenga has been in the media a lot recently. What’s your view on the state of vocational education and what your government might do?
Luxon: We’re not supportive of what’s happened there, we never have been, because what we’re seeing in the Government is massive centralisation of control. You’ve seen 16 polytechnics come together, it’s been a disaster. It’s been going on now for four or five years, there are no improved outcomes — in fact, it’s got worse.
I mean, we believe in devolution and localism, we believe there’s real benefit of having a polytechnic that is actually connected to a local, regional job market, and can actually feel connected between business and education.
So for us, we just don’t think the answer is to centralise control. You can talk about what you’re spending, you can make the big announcements as much as you want. But if you don’t do delivery and implementation and execution to get things done you don’t improve outcomes.
Q: What is National’s plan to stop our skilled labour heading offshore?
Luxon: If you’ve got resource consenting problems and delays, and you’ve commissioned work in boom times that you’re having to implement in downtimes, that’s contributing to those those highs and those lows, of those peaks and troughs. And when we get to the trough times, that’s when people shoot through and they end up not coming back.
So I think there’s a lot that we can do around apprenticeships, and to do a much better job of turning people on to the trades. I know there’s been some effort around that. But we’ve got to do a lot more.
Q: There was a comment made that housing only becomes a political issue during a crisis. How committed are you to the sector and its future?
Luxon: House is critical to everything. For instance, one of the root causes of truancy is that people have got housing insecurity and they’re being bounced around.
First and foremost, we want New Zealanders to own their own homes. Because then you make a commitment to the local school, you make a commitment to the local government, you care about your community. So home ownership is a really, really good thing.
But you’ve got to look at the four components of housing at the moment. The first is that the average house price has gone up $400,000 to more than a million dollars in four years. And we’ve got a real problem around land supply and unlocking land supply — and we have plenty of land in this country.
I think we could do some promotion around helping people to buy with respect to getting that express deposit together. If you can’t buy you’re now renting. Average rents have gone up $140 in four years. So you pay another $7500 after taxes in the same house you had four years ago.
We need to encourage rent to build operations that are coming into the country. Extending the bright line test and removing interest deductibility added another $40-$50 a week in rents across this country. We’re going to unwind those, and restore interest deductibility.
Then you get to state housing. We need to power up community housing providers and give them access to capital as well.
Q: So what are the targets that you would benchmark your success by if you become Prime Minister at the end of the next political term?
Luxon: We want to see real improvement on increased home ownership rates. We want a really high functioning rental market that encourages people to get into that market. We want to see progress on state houses.
Q: Do you think some of the ambitions you’ve talked about are realistic given some of the external challenges we’re facing at the moment — supply chain issues, the demands of climate change and sustainability, Covid — in a three-year political term? Can you really make a difference?
Luxon: It’s a longer-term issue than just a three-year political term. That’s part of the problem, right? I mean, you just think about all the projects that were going under the previous government. They’re now being turned off, as this Government takes its time to work out what it wants to do, and we just lose literally years.
We’ve got this productivity disease. We’ve got to be able to walk into a region like the Hawke’s Bay, sit down with those district councils and say right, between central and local government, what are the 10 big projects that you need done in this area over the next 15 years? Let’s lock that up together and get committed to that. We might agree on 70% of that, but let’s go.
And these are the things that make the biggest difference to the most amount of people in the fastest amount of time. And that’s the way we should be thinking about it.
Q: If National is elected next year what are your plans for KiwiBuild?
Luxon: KiwiBuild promised 100,000 homes and it will deliver 1.4% of them, so it’s clearly been a failure, I think we’ve got to come back through the lenses of home ownership, rentals, state housing, and emergency housing, and look at the problems and be really clear on what those solutions are. And there are solutions for each of those four.
The bigger issues are, as I said, our planning and infrastructure financing that is slowing up the building of houses in general. That’s the thing we want to focus on — what are the enabling processes, and what is the root cause of the problems that are stopping building getting done.
Because you can declare big goals — as we saw with 100,000 homes, 100,000 kids lifted out of poverty — all very worthy goals with good intentions, I’m sure. But there was no plan to actually execute to get that done.
And so the bigger issue here is we’ve got to have a conversation around planning and reform. We’ve got to have a bigger conversation around our local and central government, and finance and infrastructure. Those are the things that will enable us to get the breakthroughs to be able to free the markets up to be able to get houses built.
Q: We’ve been talking about the boom-bust cycle over the past couple of days. What is your sense about where we currently are in the cycle, and what the next 12 months is going to look like for the sector?
Luxon: I think that’s going to be tough. I think we’ve already had 120 construction firms fail this year. And the question for us is how do we not have such high highs and such low lows? And a lot of it is what I was trying to address in the speech around the policy settings that we need to get right regarding reform around financing, and how we build infrastructure.
Q: What are your thoughts on collaboration between different parties within the sector and the Government? There’s a really strong sense coming through from the State of the Sector survey that procurement practices have become poorer over the past 12 months. If you’re leading government, how will you improve the relationship with government and industry leaders?
Luxon: The first thing is you’ve got to go and listen. I think across a range of sectors we’re all just sitting around waiting to work out what the Government’s going to do. And what we really want to see from the sector is, what’s the sector strategy, and then the Government coming in and saying, what are the enablers to help you get that strategy away?
Places like Singapore will pull together a sector. There’ll be 60 or 70 of them working on a sector growth strategy for the next 10 to 15 years. The Government comes in when it’s about 60% to 70% complete and it says what do you actually need from us? The sector might say it needs some planning reform, actually we need some immigration settings changed etc. And away you go, and you unlock that, and you move it forward that way.
Q: What’s your plan specifically for unlocking land and creating infrastructure?
Luxon: It’s about reimagining a relationship between local and central government about how that’s done. Because central government has been abysmally slow with turnaround times and the resource constraints that we have at the BCAs. There’s a whole bunch of complexity that we’ve put into the system that needs to be sorted out and dealt to. But, ultimately, we need to be able to think through how we do that infrastructure financing and funding between central and local government.
