Construction sector reaches critical point

David Kelly

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 at the recent 2023 Constructive Forum, 52% of the sector say they have a steady or strong pipeline of work on the horizon.

However, on the flip side, this means 48% are seeing a decline, with 12% experiencing a critical diminishment of work. The survey also found 66% believe the crunch isn’t over for the country, and that things are set to worsen.

More than 1000 sector participants and home owners who had built during the past two years responded to questions about their experience building, the economy, critical issues they were facing, and their outlook for the sector.

Registered 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 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, focusing on sales and marketing, and looking to new markets such as renovation work,” Kelly says.

A key result from the survey reveals 88% of respondents believe the rising cost of construction remains the biggest issue facing the sector for the second consecutive year.

Second to that, 83% 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,” Kelly says.

“The consequence of this is that it acts as a bit of a handbrake for the residential construction sector.

“This is a concern particularly 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, 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%) and council consenting (50%) were other issues highlighted by the sector in the survey. Interestingly, woes with the supply chain have fallen away dramatically in the past 12 months, dropping from 95% to 34%.

“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 the 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,” Kelly says.

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 66% 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 9% could bring in the skilled workers they needed. This has now increased to 48%, with the remaining 52% 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 looming, it’s a good time to be heard and a good time for change,” Kelly says.

Blown timelines and budgets flagged as biggest home owner concerns

Escalating build costs and project delays were the two biggest concerns for those building homes over the past two years, according to a survey released by Master Builders. 

The insights come from the annual State of the Sector Survey, which collated the views of more than 1000 sector professionals and home owners who have built or completed a significant renovation in the past two years.

They’re asked questions about their experience building, the economy, critical issues they were facing, and their outlook for the sector.

According to respondents, 46% flagged price escalation as their biggest concern, followed by project delays at 34%.

Master Builders chief executive David Kelly says the two issues tend to come as a pair.

“Time is money, and given the recent supply chain issues, product shortages and ongoing concerns with consenting, it’s no wonder those people building or renovating have had heightened concerns about blowing the budget and timeline.”

Whilst consenting remains a key issue for the sector and home owners, there have been marginal improvements over the past 12 months. However, this may reflect slower demand taking pressure off the Building Consent Authorities (BCAs).

With that said, 85% of the sector claimed they had experienced project delays, and well over half said those delays had resulted in increased costs for their firm and their clients.

Delays of more than five weeks were the most common — experienced by 47% of respondents — and 40% said they had experienced delays of three to four weeks. 

“We know consenting has been an issue for about 20 years, and it’s getting in the way of productivity. Part of the problem is that there’s very little consistency with 67 Building Consent Authorities spread across the country,” Kelly says.

“So, there are weeks of delays, and the same consent or the same plan could be put to two different councils and get quite a different outcome.”

The State of the Sector survey also looked at the key drivers of sustainable building. Forty-five percent of home owners reported they were willing to pay a premium for a more sustainable home, with the main reason for doing so being reduced long-term running costs. Concern for the environment was the second reason given.

For those that weren’t open to building a sustainable home, 77% said it was down to cost, with a lack of information trailing behind on 14%.

“A few extra costs up front can result in lower running costs down the track. There’s a need to get better at informing home owners of the potential return on their investment. This is the role for government, and something we have been asking for some time now.

“However, as highlighted in the Master Builders Election Manifesto, we need to manage the cost of sustainable options — because it’s proving to be a barrier for both the residential and commercial sector,” Kelly says.

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