New Zealand's biggest housing construction business is on track to build more than 1500 places in its current year, its chief saying Covid-19 has not reduced workloads.
But a report for Master Builders raises concerns
New Zealand's biggest housing construction business is on track to build more than 1500 places in its current year, its chief saying Covid-19 has not reduced workloads.
But a report for Master Builders raises concerns about the longer-term future of the multibillion-dollar sector and an economist expects consents to fall next year.
Grant Porteous, of G.J. Gardner, said the franchised national business recorded inquiries up 15 per cent and preliminary deposits up 11 per cent in the current financial year to March 31, 2021 compared with last year.
"We are on par with last year where we built 1543 homes. This has been a very good year, despite the Covid-19 lockdown earlier, then working under level 3," Porteous said this month.
"In new contracts signed we are slightly above last year. In new category of an inquiry leading to an appointment, we are 15 per cent up on same time last year. In new preliminary deposits, we are 11 per cent up at this time," he said.
But an industry group has raised concerns. In a construction sector report for Master Builders out this month, consultants Sense Partners said house-building directly employed 41,700 people in the March 2020 year. The report argued for more government assistance for the sector in the pandemic era.
Most activity was conducted by small businesses with some 21,687 firms operating in 2019, the report said. Growth of the sector has been rapid: Employment doubled in the seven years from 2012.
Output had also been high, Sense said. Spending on residential buildings totalled $23.3 billion in the March 2020 year. More than 37,000 new houses were consented and 26,422 altered. Before Covid-19, the Government expected $26b of residential construction in 2020.
"The pandemic is causing an unprecedented recession. Stimulus measures are crucial to reduce the shock by boosting spending and employment, deal with underlying issues like housing and infrastructure shortages, and lock in long-term social and economic benefits," Sense said.
Porteous said throughout the global financial crisis around 2007, G.J. Gardner had grown market share. From that, he indicated the pandemic might not take the toll some expected. Major suppliers to the industry had told him the sector was in a strong period with sound forward workloads, he said.
But Auckland returning to alert level 3 last month meant some builders were unprepared for the harsher restrictions and did not have jobs prioritised so they had a slow first few weeks, he said.
Most building supply merchants had enjoyed one or two record months but that did not make up for the lost business over level 4 or just balanced it out, Porteous said he had been told.
"Initially, after a bit of a lag following the move to level 3, due to the mad rush to catch up supply was at or above capacity both at merchant level and for many manufacturers.
"Now by the approach we are seeing and commentary from the merchant and supply channels, they have spare capacity for the first time in years. And some of their even larger builder clients are concerned about forward work," Porteous said.
"Higher-end home-builders have passed comment planned forward work has been in many instances put on hold," he said.
"Very good and sought-after commercial builders have told me commercial work has certainly lost momentum, with many projects put on hold. Our franchisees are being approached by trades looking for work as the builders they have normally worked for are slowing down," he said.
Banks were tightening lending, wanting more assurances about potential clients' ongoing employment and income streams, he said.
Low interest rates were encouraging new buyers to consider building.
Stats NZ said the number of new homes consented in June was 3477, about 20 per cent more than the same month last year. That rise was boosted by a record 1071 new townhouses, flats, and units. That was the first time more than 1000 of these homes had been consented in a month since the series began in April 1990. This brought the number of new homes consented in the June 2020 quarter to 9213, of which 2620 were townhouses, flats, and units.
Satish Ranchhod, a Westpac senior economist, expects new residential building consents to fall next year.
"But it's definitely not all downside. Many firms entered the downturn with full order books. In addition, while the economy is being buffeted by some powerful headwinds, economic activity has been more resilient than expected. That's in large part because of New Zealand's success controlling the spread of Covid-19.
"Low interest rates and government stimulus look like they are helping to buoy economic activity and household sentiment. Those conditions could help to sustain the construction cycle," Ranchhod said.
Much recent strength in dwelling consent numbers was a reflection of the firming in the housing market from late 2019 and early 2020, combined with strong population growth in recent years.
Those conditions made it very attractive for developers to agree to new projects, he said.
"This recent strength in consent numbers is consistent with our expectation that home building activity will remain firm through the back half of this year," he said.
But the big question was how long that strength would last.
"Many of the projects that have been granted consents recently would have been in the planning stages for some time before Covid appeared on our shores," Ranchhod said.
"For developers who are now looking at bringing new projects to market, I think the outlook is looking a lot more uncertain. There are big questions about how the labour market will fare as the wage subsidy rolls off and related downside risks for households' willingness to make major purchases.
"That will make a lot of developers caution about initiating new projects, especially as many developments require a high level of pre-sales," he said.
Population growth could surprise on the downside.
"There have been a lot of anecdotes about returning New Zealanders recently. However, those comments really relate to the inflows we saw back in March," he noted.
Since then, the number of New Zealanders coming home has actually dropped to very low levels, in part because of limits on the amount of space in hotel quarantine facilities.
"Combined with a lack of other migrants, that leaves us looking at a sharp slowdown in population growth over the coming year. In fact, after growing by around 80,000 people per annum in recent years, we think population growth could effectively halve over the year ahead," Ranchhod said.
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