$16b construction sector hard-hit: 500 building projects impacted due to Covid

$16b sector one of New Zealand's largest employers. Photo / Greg Bowker

Around 500 New Zealand building projects have been impacted due to Covid this year, Building and Construction Minister Poto Williams has been told.

In one of the many incoming ministerial briefing papers out today, the Ministry of Business, Innovation and Employment told Williams of the toll the pandemic took on the sector.

"While it is still too early to precisely estimate the impact of the Covid-19 on the building and construction sector, research found that approximately 200 known construction projects were impacted by Covid at the start of April with this figure rising to near 500 known projects in August," the paper said.

The building and construction sector is New Zealand's fourth-largest employer.

It employs about 259,000 people and accounts for just under 10 per cent of the country's workforce.

The sector contributed $16.19 billion to New Zealand's gross domestic product in the year ended June 2020. This is around 6 per cent of the total GDP. According to an estimate by PricewaterhouseCoopers in 2016, every $1 invested in the building and construction sector produced between $2.51 and $3.11 in economic activity, the paper said.

The briefing paper cited the research on cancelled projects as coming from Pacifecon.

Auckland Council cancelled plans for a mooring dolphin at the end of Queen's Wharf on the waterfront to accommodate big cruise ships.

Precinct Properties deferred the $298m project planned for the existing One Queen St, which it planned to extend for a new InterContinental Hotel.

Coronavirus and the tourism downturn stalled $70m plans for Queenstown's new Radisson Hotel and the conversion of an Auckland building into a budget sleeping pod hotel. Augusta Property put both projects on hold.

Pacifecon has reported on projects worth about $551m being cancelled.

"Projects are cancelled for various reasons: the developer has changed their mind, the site has been sold, reasons outside the developers' control prevent progress," the report said.

"More projects are now on hold as some companies are taking a cautious approach to see how the economy progresses in the coming months. Budgets have been re-examined.
In Christchurch, we have heard of contractors scratching around for work, with larger developers holding off and margins dropping. Recent Christchurch building consents have dropped in number with not many commercial projects," Pacifecon said.

Lots of businesses reported that while they were busy, they are mindful of potential changes once the wage subsidies and mortgage holidays finish but are not totally sure what will happen.

SkyCity continues but many other projects were cancelled. Photo / Jason Oxenham

"Many of our contacts say there are many planned projects out there, but due to lack of surety as to the economic future, nobody wants to make hasty decisions", the business found.

"Due to necessary redundancies [that have] already happened, some companies are no longer able to tender for large projects, looking at smaller opportunities to keep the business going.

"Cashflow remains tight for many companies," Pacifecon said.

The sector was also suffering delays getting products here from overseas, Australia in particular.

Previous comments were that stock coming in from Asia was a problem but that had improved lately. There has been very little delay for imported product via sea, but delays have impacted supply via air freight, Pacifecon reported.

A BDO survey out last month showed Covid's biggest impact was rising uncertainty about future work because 69 per cent of respondents had contracts cancelled or delayed lately.

Falling margins were the second-biggest worry as builders competed against each other with low-ball bidding.

Building contractors said average gross profit margins on jobs were 7 to 9 per cent but, post-Covid, builders were more desperate for work so a few were cutting margins.

A quarter of respondents planned to reduce staff and 42 per cent - twice as many as last year - suffered delays of more than three months on their jobs, the BDO survey reported.