Govt could ‘come to the table with more money’ to get people into their own homes

The cracks are starting to show in the construction industry as the sector continues to face increasing costs and workforce pressures, a prominent economist says.

Stats NZ on Tuesday reported total construction volumes were up 3.8 percent from the June quarter. Volumes increased for both the residential and non-residential sub-industries in the September quarter, up 3.1 percent and 4.9 percent from June respectively.

That jump came as no surprise to Infometrics principal economist Brad Olsen, who said building activity remained strong.

But Olsen painted a bleak picture of the construction industry in the coming year.

“Into the future, the cracks are starting to grow,” he told AM Early. “What you’re seeing is that, really, New Zealand is trying to build about 20 percent more just in the residential space than what we would normally be able to cope with.”

That meant despite building consents continuing to rise, “actual building activity has been a bit more stable and lower”, Olsen said.

“We are seeing, with quite a number of issues starting to affect building, a real challenge in the months and years ahead. We know that liquidations of building companies have started to increase, we’re seeing… difficulties finding materials, difficulties finding workers, higher interest rates – all of that is starting to hit.”

Olsen pointed to last week’s ANZ Business Outlook survey, which showed a net 90 percent of residential builders expecting activity to decline – the worst result on record.

“Really, that concerns us,” Olsen said. “We know that the construction sector often goes through a boom and bust cycle but, at the moment, you are getting a lot of red lights starting to flash – where the building sector has a lot of work to do over the next year. After that, though, it becomes a lot harder for the building sector to continue at the pace that it’s been going.”

Olsen said it’s possible the Government steps in.

“We know those cost pressures are coming through because we’re trying to do, effectively, still too much with too little given how much is in the construction sector.

“With that, you do wonder as well, given we still have enormously high house prices that are still unaffordable for many young people to get into the housing market, if we do see construction that starts to turn around in a year or two, this might be the time for the Government to step in with a strong building programme to keep things going.”