Two years ago, we wrote that “the construction sector is under pressure – there are too many people wanting things built, and not enough Builders to do the work… we can’t speed up the rate of building much faster without it causing major cost increases”. Today, New Zealand is still in the same situation, and the cost increases are starting to bite. In the year to March 2018, Builders across New Zealand carried out just 0.6% more work than they had the year before. But the cost of building got more expensive – by about 5%.
This comes at a time when New Zealand is building more than ever before, and it’s still not enough: housing shortages in Auckland and elsewhere, a tourism boom, and creaking infrastructure.
New Zealand Builders had a similar boom/ plateau in the mid-2000s. That didn’t end well: volumes dropped by 29% in the following four years. And then they went up, up up – volumes have risen by 69% since the deepest part of the downturn, taking the construction industry to record levels. Our “Constructive Thought” below shows this graphically, with the “volume” of work Builders have done each year since 1990.
Those ups and downs have been tough for people in the industry, the Tradies and the Builders and the professions that rely on construction. Many of them would have had a pretty skinny few years after the GFC hit. Many left the industry or even the country. In 2007, there were around 195,000 people employed in construction. That fell to 160,000 during the downturn, and now it’s up around 250,000. Construction firms faced huge logistical challenges in trying to grow at double-digit rates through the last five years, getting people and machines and material to where they need to be.
So how can the industry keep growing when it’s employing record numbers of people but still needs tens of thousands more, or when supply chains are stretched and it’s hard to get the product? Is it just an endless treadmill or is there actually time to innovate, without adding extra risk? These are critically important questions for Builders, Government, Funders, Consultants and other Stakeholders… which includes all 4.7 million New Zealanders, really.
There are some interesting regional differences. Starting in 2012, Canterbury started responding to the 2010/11 earthquakes with the biggest building boom the region had ever seen. This boom has been tailing off since 2017, although it’s still high by historical levels.
Auckland is still growing, but probably not by much when you take off price increases. Auckland is both the biggest challenge and the biggest opportunity for NZ Builders. The level of construction still needs to scale up further, much further, to make a dent in the housing shortage. But it’s not easy when living costs are high, roads are congested, and you’re competing with other parts of NZ and overseas to get resources in place. With the edge coming off house prices and build costs still very high, Developers are finding it hard to get new projects over the line.
Outside of Canterbury and Auckland, most of the rest of New Zealand is building as fast as it can, with a strong future pipeline.
The house price boom might have started in Auckland, but the results are often more exciting in the smaller towns and cities – places which hadn’t seen much growth, but are now building new homes and investing in their town centres. This is great to see, and long may it continue!
Building in New Zealand has often been a boom-bust proposition. The graph here tells part of the story, although it only shows the tail end of the late 80s boom-bust. The 90s were fairly stable, the 2000s reached a higher plateau followed by a post-GFC bust, and in the last couple of years we’ve reached new heights – but again, we’ve struggled to lift building activity beyond a certain point.
Local Media highlights from the past week...
Home building in Auckland is at record levels, with a second consecutive month of strong data being described as unexpected.
Auckland Council said 1530 residential building consents were approved in May, a record for that month and following a record-breaking April.
Thousands of property rates valuations in Auckland are caught in an unprecedented dispute between the council and state-owned valuer QV.
QV has been found to have taken short-cuts in thousands of valuations for setting property rates, and missed two deadlines to complete the work.
The recent strong surge in Auckland building consents has prompted Westpac economists to substantially lift their forecasts of near-term residential building activity in the country's largest city.
In a new Construction Bulletin issued by Westpac, senior economist Satish Ranchhod says Auckland's now entering a "new phase" of the construction cycle due to the combination of increasing construction and now slowing population growth.
If you thought taking seven years to save a 20 per cent deposit for an Auckland house was bad, spare a thought for first home buyers in some parts of the United States.
Research by the United States Mortgage Insurers Association shows it can take someone earning the median income up to 37 years to save a 20 per cent deposit in California for a median-priced house.