Registered Master Builders Association president Johnny Calley says to build a more sustainable construction industry in New Zealand, policymakers and industry stakeholders must take steps to mitigate reactionary decisions regarding the unfortunate boom-bust cycle.
Building code changes, economic instability, construction actively slowing, property values dropping, company liquidations, and net migration are the headlines we’re waking up to in the media every day. So it’s no wonder the property market is in a state of paralysis.
The unfortunate construction boom-bust cycle appears to be alive and kicking, primarily due to the inflation pandemic this time around, but the usual contributors are also playing their part.
We mustn’t forget that before Covid was a thing, the construction sector was showing signs of slowing in a more natural setting, and it was only saved by the post-Covid, cash-induced economy pumped up by Covid stimulus.
One of the most significant challenges of the more recent boom was the acute shortage of skilled workers, particularly in specialised areas such as site management, quantity surveying, project management and the sub-trades.
This shortage led to higher wages and project delays, making it more expensive for construction businesses to undertake projects.
Unfortunately, now the market is showing signs of slowing, we are already seeing (particularly in the residential sector) those key roles being made redundant in an attempt to reduce the financial burden of the forecast bust period.
Some employees that have been made redundant will have sector-wide transferrable skills and will find another home. But the rest will be lost to other industries and will never return.
Same old behaviour
From a short-term financial perspective, having fewer overheads all makes sense, but from a long-term industry productivity perspective we are just carrying out the same old behaviour that follows the boom cycle.
I’m not suggesting that we should be putting our businesses into financial harm by holding on to high salary staff for the good of the industry.
But to build a more sustainable construction industry in New Zealand, policymakers and industry stakeholders must take steps to mitigate these reactionary decisions regarding the boom-bust cycle.
Having a flexible workforce can help you respond quickly to changes in demand. By using a mix of permanent employees and temporary external services, you can adjust your workforce size to meet fluctuating demand without incurring unnecessary costs.
A stronger focus on long-term planning and investment is a must. For example, the Government needs to invest in proportionately distributing all crown-funded projects on early contractor involvement (ECI) models where business attributes, fair margins and procurement strategies are the main consideration in contractor selection.
By providing pipeline stability across residential and commercial projects with guaranteed government investment, businesses willing to retain key personnel can confidently invest in productivity, which makes construction projects more efficient and cost-effective in the long term.
To be at your productive best in a boom cycle, you need upfront investment and a long-term commitment by retaining key staff in the bust cycle. This financial commitment will not be easy to digest for some, but the benefits are significant.
As we know, economic trends come and go, and we will head towards a boom cycle before long. Those who have invested in a long-term strategy to retain key staff will be well positioned to take advantage.
Financial literacy
On the topic of long-term business investment, financial literacy is an essential skill that is often overlooked in the building industry.
While builders, consultants and contractors are experts in their respective fields, they may not have the financial knowledge necessary to make informed business decisions.
However, as the building industry becomes increasingly competitive in 2023, it is becoming more important for industry professionals to have a solid understanding of financial concepts.
Many building contractors and subcontractors are small business owners, and don’t apply many financial reporting systems outside an invoicing programme.
Important skill set
With so many advantages to understanding the financial position of your business, it should be seen as an important skill set to either develop or integrate into the day-to-day operation.
In larger establishments, the financial performance of the business is often overlooked in the process of competing for projects, and it’s this lack of financial literacy that can put unintended risk on a business.
Tender processes are not designed to reward business profitability and, therefore, margin squeeze becomes the focus as opposed to the overall financial performance of the business.
Master Builders is looking at providing members financial awareness tools throughout 2023 as part of its membership services suite.
* * *
Building a talent pipeline
As we head towards the election, training apprentices must remain a key priority.
As RMBA chief executive David Kelly noted in the April edition of Building Today, the government’s Apprenticeship Boost scheme needs to be extended to support companies to maintain their apprentices during this period of uncertainty.
Upskilling an industry talent pipeline takes time, and the development of apprentices will pay the economy back in spades with a larger pool of skilled workers.
Whoever is in government after the election must continue to invest in apprentices.
On top of building a larger talent pool, apprenticeships can help to enhance diversity and inclusion in the workplace by providing opportunities for people from different backgrounds to gain skills and experience.
Keep up the good work, stay focused, and let’s keep smoothing the boom-bust peaks and troughs.
