There has been a big downturn in the building sector. Photo / Getty Images
Dream home builds are being downsized, abandoned or swapped for renovations as consumer confidence slides and the economy softens, experts say.
One leader in the sector says inquiries for new builds had fallen 20 per cent and “2023 will not be a year for builders to be buying new utes and boats”.
A major building boss also held fears for cities such as Tauranga where construction was one of the major employers and “the effects will be severely felt”, and the buying frenzy caused by historically low interest rates in the past had created “the perfect recipe to head into a recession”.
Figures from Stats NZ show that nationally, stand-alone house consents to the end of the third quarter of this year dropped 2890 to 16,644 and were valued at $8.9 billion compared to $9b over the same timeframes last year. Townhouses and homes units increased by 4425 to 15,935, valued at $4.5b - up from $2.9b - alongside 1383 apartment consents, up by 176 from $1.1b to $1.18b.
Classic Group director Peter Cooney said inquiries for homes had dropped off over the past few months and this would have a severe impact on Tauranga’s economy heading into the middle of next year.
“Construction is one of the major employers in Tauranga so the effects will be severely felt. Couple that with the slow progress of bringing much-needed land supply to the market and you have the perfect storm.”
Once interest rates start to decline again confidence would return, he said.
“In my view, interest rates should never have been dropped so low for so long as it was obvious there was a buying frenzy, all of us in the industry could see what was happening, and now interest will be up to high for too long. The perfect recipe to head into a recession.”
Classic Group was made up of several entities and he said, as with previous recessions, the group was equipped to ride out the storm.
Davy Construction Home Builders and Renovations owner Troy Davy said it had been a busy but challenging year.
The business was now more focused on recladding and renovation work due to the changing market.
“I’d love to be doing a few more new builds and have that split but the last 12 months have been renovations whereas before it was a 50/50 split. Going forward we have some big renovations and maybe one new build on the cards.”
Davy said, in his opinion, it was harder for first-home buyers to raise a deposit and investors had been wary.
“It’s my understanding in the last four to five months sales have dropped massively for house group builders.”
Tauranga Builders owner Louis Davis said there had been a drop-off in inquiries but he had the ability to “chop and change”.
“The new-home builders are reliant on the availability of new sections, land and subdivisions. It’s been a crazy two years ... I think a slowdown was to be expected and it was always coming. It’s a boom-or-bust industry and that is what it’s always done.”
He had also noticed it was becoming harder for clients to secure finance from banks for renovations despite having good jobs.
Priority One chief executive Nigel Tutt said the construction sector accounted for 12 per cent of jobs in the Bay of Plenty.
“Any downturn in that industry will be significant in the terms of jobs and businesses. Certainly, we would expect that industry to face some tough times next year as interest rates make it harder for people to buy a house.”
Tutt said the city had a housing crisis but on the other hand there was still positive population growth, and big infrastructure and commercial projects were going ahead.
Master Builders chief executive David Kelly said there was no doubt the economy was beginning to soften.
“This is certainly being felt, particularly across residential building and as a sector we have been here before. We have had a very strong decade and while the market now appears to be turning, it’s not the same as the sharp shocks we have seen in the past.”
However, it does give businesses time to plan and make sensible decisions.
“We should not underestimate the resilience of the sector. While we are hearing that inquiries for new builds are softening, this is off a very high base. We all knew a correction was needed and our members are still reporting strong inquiries for renovation.
“Commercial construction also remains very strong. We need to remember that New Zealanders still need homes, schools, hospitals and other facilities to be built.”
It was also worth considering that many of the challenges people were facing are now easing off.
“If you are in a position to do so, now is a very good time to build. The product shortages we’ve been experiencing are starting to stabilise, and there is capacity in the market. It is easier to find a builder now to discuss your upcoming project.”
New Zealand Certified Builders chief executive Malcolm Fleming said the drop-off in inquiries was about 20 per cent, which equated to pre-Covid levels.
“Members are still reporting a good forward workload, some through to 2024. There is quite a degree of existing projects being rescoped downwards, with the client’s alternative to the ‘dream home’ being to either reduce the size of the house or to instead undertake alterations or additions on their existing home and not build new.”
Fleming said the consequence of the homeowner being able to borrow less from their bank meant the rescoping of some projects to lower price points.
“Some new builds are now changing to be alterations and additions of a homeowner’s existing property.”
For qualified builders with a good reputation, the workload for 2023 appears to be positive, he said.
“Even allowing for that, there is certainly a sentiment among NZCB builders that they will be focusing on cost control and managing risks, 2023 will not be a year for builders to be buying new utes and boats.”
Homeowners now have a choice of which builder they use for their building projects.
“They should exercise that choice prudently by ensuring the builder they engage is a qualified builder and that the builder is aligned with a trade association.”
Kiwibank chief economist Jarrod Kerr said it can be daunting to see mortgage rates increase, but interest rates always move with the economic cycle.
“When economic growth is slowing, interest rates are slashed to stimulate growth. We saw a historic low in interest rates during the Covid pandemic. When the economy is heating up, interest rates are lifted to cool the economy down and tame the inflation beast.
“Interest rates have been hiked aggressively by the Reserve Bank of New Zealand which, in turn, causes banks to hike interest rates, in response to rapid price increases.”
Kiwibank expected interest rates to peak over the next year as the economy cools and inflation eases.
An ANZ spokeswoman said it launched its Blueprint to Build offer in July last year, which was a 2.76 per cent discount off its standard floating rate for a two-year period for customers building a new home.
Since then more than 8000 customers had built a new home – with more than $4 billion of lending drawn on its Blueprint to Build rate.
BNZ consumer lending and insurance partnerships general manager Martin Elliott said total home lending has slowed compared to last year.
“Therefore our lending for new builds has slowed as well, but this isn’t unexpected in the current rising interest rate environment.”
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