Building confidence: booming construction sector growth forecast, $39b output to hit $43b peak

Crane city: Auckland's skyline reflects construction sector growth. Photo / Greg Bowker

Sinking business confidence is at odds with robust economic fundamentals, perhaps no more so than in the booming construction sector where growth is forecast in the industry said to be the main current contributor to GDP growth.

New Zealand's total construction value output rose 5 per cent last year to hit a record $39 billion worth of work and Auckland new house-building consents and completions continue to climb.

The sector employs 9 per cent of the national workforce and this year, is forecast to finish more than $40b of work: new houses, infrastructure and commercial construction.

Cranes on our skyline are but one example: in this year's third quarter, there were 131 large tower cranes up nationally of which 95 were in Auckland alone, and although numbers are levelling off, they are still at record numbers, according to the RLB Crane Index.

Fletcher Building increased construction division gross revenue from $1.6b to $1.7b in the year to June 30, 2019, when it had a $1.4b backlog of work. And although it had intended to reject high-rise work after losses in the B+I division, it said in August it had confirmed intention to "recommence focused bidding in the vertical construction market."

Culum Manson of Mansons TCLM. Photo / Doug Sheering

Culum Manson of New Zealand's largest privately-owned developers Mansons TCLM said: "We have north of $1b value of work underway and we've got a lot more coming.

"Sentiment surveys don't have anything to do with us. There's a lot of talk about procurement processes and going for the lowest price but good operators don't do that anyway. We have a number of suppliers and contractors we've been working with for decades and we're all sensible about how we go about our business. We don't put too much risk on each other. If you're just going for the bottom dollar, you're going to get problems," Manson said.

Some current Mansons TCLM projects include:
• This year's biggest real estate deal for $247m, selling the under-construction new office block at 155 Fanshawe St;
• 136 Fanshawe St, the former House of Haghi rugs site, where a new 22,938sq m office is rising with 212 carparks;
• At 46 Albert St, a $350m 10-level office building adjacent to the new EVEN hotel which will also include a Holiday Inn;
• 74 St Georges Bay Rd, new offices for Mansons, now next door. That Fearon Hay design is 2054sq m with 34 carparks;
• Luxury apartments, Coates Ave, Orākei, almost completed.
• Ted Manson Foundation work including new Liverpool St apartments, now finished in the CBD and new Glen Eden apartments almost finished.

Manson said it was his job to ensure a future pipeline of work and he envisaged no slowdown: "We have at least six years of construction locked in ahead of us. We can see opportunities for the future and in our sector of the office market, people are still wanting to upgrade and it's more affordable to do that. It's like getting a new car of a new phone."

The NZ International Convention Centre, one of the larger jobs. Photo / Michael Craig

In August, the Ministry of Business, Innovation and Employment released the seventh National Construction Pipeline Report which forecast building work to rise next year, so that by 2021 it will reach a $43b peak and remain high at $42b in 2024.

Company failures, liquidations, receiverships and litigation dominate sector media coverage which could give the false impression of a decline.

Key pipeline report findings were:

• Construction activity growth was forecast to continue through to 2021;
• Residential building activity in Auckland was forecast to continue to grow;
• Non-residential building activity is forecast to peak in 2021;
• Infrastructure activity is forecast to overtake non-residential activity by 2023.

House-building is forecast to "level out" from next year and non-residential activity would "tail off", the report said.

"New Zealand's total construction value increased by 5 per cent in 2018 to $39b. This year's forecast is for continued growth in the value of construction to $43b in 2021. Post this peak in 2021, the forecast is for a slight tailing off in construction value to $42b in 2024."

But Auckland, with around 40,000 annual migrants, would buck that trend and enjoy strong ongoing new house-building growth. Last year, $8.8b of new houses went up in Auckland, but that would grow to $12.2b by the end of the forecast period, 39 per cent above 2018 levels, the report said.

David Norman, Auckland Council's chief economist, says growth in the sector is not better explained than with this graph.

Growth in the sector clear from this graphic. Image / supplied

Satish Ranchhod, a Westpac senior economist, understands why business sentiment surveys are not glowing when it comes to the building sector because he is also forecasting a slight decline.

"We're forecasting further strong growth in that sector this year and next but just like the pipeline report, a levelling off in 2021. That's due to a wind-down in Canterbury reconstruction and rapid population growth which fuelling housing demand being past its peak."

Immigration peaked in 2016 with a net gain of 64,000 people and is forecast to be slightly below 50,000 this year.

"We've had population growth far outstripping building levels but now we've seen a ramp-up in house building which is running more or less commensurate with where it should be.

"Should business be gloomy about the outlook for construction? There are reasons for concerns, particularly on the big infrastructure projects where costs are rising. But that should be balanced against a strong pipeline of planned work," Ranchhod said.

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Construction sector growth running at high levels. Photo / file

On Thursday, Auckland mayor Phil Goff said a record 14,345 new home consents were issued in the year to August.

"Just seven years ago we were only issuing about 3600 consents a year—we've issued more than 4000 in the last three months alone. In August 1407 dwelling consents were issued, taking the total for the past 12 months to 14,345."

Furthermore, 1244 new dwellings were completed in August, by having a Code Compliance Certificate issued, taking the total number of finished new Auckland dwellings completed this year to 10,979.

"Building new houses in Auckland remains a priority as we continue to deal with the pressures of housing growth and unaffordability, but these figures show that we are addressing the shortfall. It's also encouraging to see that Auckland is becoming a more compact city, as the Unitary Plan intended.

"Sixty per cent of the consents issued in August were for apartments or other attached housing types such as townhouses and unit. In the past 12 months, 94 per cent of new dwellings consented have been inside the Rural Urban Boundary. Auckland is growing up instead of just out," Goff said.

Growth is perhaps best explained by Ross Wilson, a council analyst in the research and evaluation unit, writing on the city's building consents: "For October 2019 update onwards, they are now so high that I have had to expand the graph axes - again."

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