The residential construction sector in New Zeraland is under pressure.
There is a “mass exodus” of people leaving the residential building industry and some businesses have lost up to 80 per cent of their work, says the boss of a leading company.
The news comes as a building association across the Tasman says Australia “needs to attract around half a million workers” in the next four years.
Classic Group director Peter Cooney said the downturn was hitting the New Zealand construction industry hard, and it tended to be a boom-to-bust industry.
“You are either hiring or firing ... you’re either up or you’re down and it’s not either one way or the other.”
Skilled workers were leaving the industry or the country as a result and the industry was likely to struggle to find enough workers once the economy eventually bounced back, Cooney said.
“People leave, developers leave, developers go broke. People leave the industry and they don’t want to come back because they lose confidence.
“I mean, you’re looking at a mass exodus. I know of lots of builders, and people involved in the building industry that have gone to Australia because it’s more stable there.”
It was reported earlier this month that the annual net migration loss to Australia last year was the largest in almost a decade.
Stats NZ 2022 data showed a net migration loss of 13,400 people from New Zealand to Australia, the largest annual loss since 2013.
Cooney said the housing market had “cracked” as a result of the economic downturn.
“We are down 50 per cent but I know of people who are down 70 to 80 per cent so it’s pretty bloody serious.”
A slowdown in the construction pipeline inevitably impacted a large network of tradespeople, he said.
“They will be feeling the hurt and we are doing our very best to increase productivity where we can. We’re worried about qualified and experienced labour leaving regions that have a critical need for housing, or leaving New Zealand or the industry altogether.”
Classic Group had to lay off 12 of its own staff last month and Cooney estimated it may only build 400 new residential homes, compared to 800 last year.
“When the market begins to rebuild, New Zealand will struggle to respond and rebuild at the pace it will need and want to, and any depletion in experienced labour is only going to compound the issue.”
In Cooney’s opinion, the current situation had been caused by dramatic changes in interest rates which had come off a record low that created a “feeding frenzy” and then had risen sharply as the country battled a resulting rise in inflation and substantial increases in construction costs.
“People just can’t get financed now so therefore the market has turned on its head again. To be fair, across the board, I’d say the market has dropped by at least 50 per cent, the inquiry is there but they just can’t get the money and when it comes back we will have to start all over again.”
Lockwood Homes managing director Andrew LaGrouw said people had started to make building decisions again now that interest rates have peaked.
“The labour constraints we have experienced in the last few years have dissipated and building costs have stabilised, so building contractors should be able to offer fixed-price contracts again.”
LaGrouw said the promise of money might lure young builders to Australia, but he believed the reality may not meet their expectations.
“Time spent in the NZ building industry means they are going to be better skilled, better qualified and ultimately, better paid than if they go to Australia for a few years.”
Lockwood Homes, which has its head office in Rotorua, had been in business for more than 70 years and would adapt to the prevailing conditions.
“It comes down to business resilience and this is not our first rodeo.”
Registered Master Builders chief executive David Kelly said one of the real issues in a downturn “is that we stop training and bringing people into the sector”.
“Then when there is a correction, we do not have the skilled labour available to deliver. A key difference this time round is that we have the Government’s Apprentice Boost in place. This is supporting the sector to retain apprentices and keep training – this is a positive difference.”
He said the sector was used to the boom-bust cycle and “we have faced it for the past five decades” and this recession was not predicted to be as long.
“In the GFC, we were in a situation where the banks did not have the funds available to lend, that is not the same this time round. And that will make a significant difference.”
Kelly said the sector was the third-largest contributor to GDP and sustained more than 540,000 jobs. During the GFC, house building declined by 50 per cent and the residential construction sector lost 25 per cent of its workforce.
New Zealand Certified Builders chief executive Malcolm Fleming said there had been a distinct reduction in new inquiry generally, with the drop-off most pronounced for new homes.
However, it was important to note that new home builds made up part of the residential market, with the balance being alterations, additions and weather-related repairs.
“These inquiries have increased at the expense of new-home-build inquiries. It is important to make the point that while inquiry has fallen from where it was in recent years, those recent levels reflect historical highs, while current inquiry levels are resembling pre-Covid levels.
“The underlying cause of this is that homeowners are being negatively impacted by rising interest rates that reduce the amount that a bank will lend them, while building product cost escalation has meant that their dollar doesn’t go as far as it did when they first started planning for a new build.”
Trade Me jobs sales director Matt Tolich said nationwide, job listings in the trades and services sector were down 17 per cent, and were down 25 per cent in the Bay of Plenty in the second quarter of 2023 compared with the first quarter.
Nationwide, applications in the sector were up 60 per cent compared with the first quarter, while in the Bay of Plenty applications were up 89 per cent. With fewer roles to go around it is unsurprising to see such an increase in applications, he said.
The average salary for trades and services was about $69,000, while the highest-paying roles in the last quarter were electricians at $81,000, air conditioning and refrigeration specialists at $79,000 and plumbers at $76,000.
Construction industry training organisation BCITO said in astatement there was a softening in the building sector, evidenced by the latest building consent numbers. However, at the end of June 2023 it had 18,908 apprentices undertaking training across 15 trades, up 36 per cent from the 13,900 apprentices in August 2020.
The number of employers supporting apprentices also increased from 6900 to 8974 in the same period.
“The Apprenticeship Boost not only reduces the cost of training but produces a skilled and long-term worker for the sector. The boost means there will be a significant difference from previous downturns when apprentice numbers did decline.”
Ministry for Social Development employment group general manager Hugh Miller said since the establishment of Apprenticeship Boost in August 2022, 19,485 employers have received payments and 59,463 apprentices had been supported.
The total paid to date was more than $636 million (GST inclusive) and the rate payable was $500 per month (GST exclusive) for both first-year and second-year apprentices.
Master Builders Australia chief executive Denita Wawn said a shortage of skilled tradespeople was the most immediate challenge facing businesses in Australia’s home building industry at present.
“With Australia’s population projected to grow by over 50 per cent between 2022 and 2060, to reach nearly 40 million people, there will be a lot of building and construction work that needs to be undertaken and a significant workforce that will be needed to do this work.”
About 1.3 million people work in Australia’s building and construction workforce.
“Master Builders estimates that workforce growth and replacement in the four years to November 2026 will mean the industry needs to attract around half a million workers. Most of these workers will be replacing the conservatively estimated 7.8 per cent of the workforce that exit the industry each year.”
However, uncertainty around demand for residential building work was making it difficult for businesses to plan, as interest rates for home and renovation projects were still on the way up.
“The heavier emphasis by Government on expanding the stock of social/affordable housing is offering some glimpses of light to those in the industry.”
About 175,000 new homes were completed across Australia over the year to March 2023 - an increase of 14 per cent on the last quarter. The average yearly wage for total earnings in construction was NZ$110,000 in the November 2022 quarter according to its data.
Statistics NZ data shows there were 45,159 new homes consented in the year ended May, down 11 per cent compared with the year before.
Statistics NZ construction and property statistics manager Michael Heslop said with the record of 51,015 homes consented in the year ended May 2022, there is likely still a lot of construction work in the pipeline.
Carmen Hall is a news director for the Bay of Plenty Times and Rotorua Daily Post, covering business and general news. She has been a Voyager Media Awards winner and a journalist for 25 years.
The couple spend five months a year in America running their business.