The Reserve Bank is concerned the fragmented nature of the New Zealand building construction industry, plus constraints on access to labour, materials and funding, could hamper high density construction and intensification in Auckland.
The central bank and prudential regulator of banks makes this point in its latest Monetary Policy Statement (MPS). It also suggests the entry into the New Zealand market of big international construction firms could help the construction industry combat its challenges by increasing scale and introducing new technology.
The MPS points out that Reserve Bank staff regularly meet a range of organisations to improve their industry knowledge and understanding of current economic conditions. Of recent business visits to 40 entities, half were to companies active in the construction industry.
One of the things Reserve Bank staff were told is that the construction industry is operating close to full capacity and there may be little scope for activity to increase significantly from current levels. This, the MPS notes, is at a time when the Canterbury rebuild is plateauing and focus is shifting to Auckland, where the Unitary Plan is expected to enable more high density housing and housing intensification to combat the housing supply imbalance in the city.
However, the Reserve Bank outlines concerns around a range of constraints that could limit the boost to construction activity in Auckland.
"The construction industry is reportedly facing several constraints that may impede future activity, such as access to labour, materials, and funding. Most contacts are struggling to find labour to fill a wide range of positions. The labour shortage is reportedly most acute in Auckland, where high living costs are deterring construction workers from relocating from Canterbury or immigrating from overseas. Contacts note that it is also becoming increasingly difficult to access construction materials, with shortages becoming acute for some materials. This is leading to some construction firms facing long wait-times and cost increases," the Reserve Bank says.
"There has recently been a tightening in credit availability in the construction industry, constraining some firms’ ability to increase activity. Contacts note that new and small firms, as well as apartment developers, have been impacted most severely. A lack of funding has led to some construction projects being deferred or cancelled, and contacts expect that credit conditions will continue to tighten. Changes to retentions policy and increased demand for bonding (the provision of liquid assets as assurance that work will be completed), are reportedly putting even more pressure on construction firms’ cash flow," says the Reserve Bank.
It goes on to say that given the New Zealand construction industry is dominated by small firms, this fragmented industry structure could be an impediment to meeting future demand.
"The industry struggles to achieve large-scale construction and innovation is limited. These factors could impede high-density construction and intensification in Auckland. A move towards new procurement methods and prefabricated or modular housing is seen as a positive, and a necessary step forward. The entry of large international construction firms into the New Zealand market could further aid the industry in overcoming these challenges by increasing scale and introducing new technology."
The charts below come from the Reserve Bank's MPS.
*This article was first published in our email for paying subscribers early on Friday morning. See here for more details and how to subscribe.
13 Comments
The problem is more than just the small fragmented nature of NZ construction firms. But that business is over concentrated in the building supplies area. When Knauf the world's largest supplier of plaster board could not break into the NZ market because of the anti-competitive actions of the makers of Gib Board and nothing is done about it, surely that tells the story. If we are not prepared to do an honest assessment of the problem then we cannot expect much improvement.....
Absolutely right, and that is just the tip of the iceberg. I note that Knauff also had a lot of problems getting their insulation into the market. To get past the retail market gate keeps they initially marketed directly to the public through the internet at prices that were substantially lower than the incumbent suppliers. I note that they have now closed off this and our only source is through the monopolistic retailer distribution chain. Clearly they have been admitted to the club and bought off.
One of the other glaringly obvious construction material rip off's is cement which we pay through the nose in just about every thing we build.
They will have the same problem when local firms grow rapidly. They just have to take whoever is there in the labour market. Unless they have a supply chain and can bring in a large number of competent people (hahahaha) then it wouldn't make a difference.
All that would happen is there would be a large number of badly built buildings that would become obvious over the next decade. Then I would have to go in and figure out the best way to fix up the giant mess that a large bungling overseas company would create. Perhaps RBNZ should focus on talking about things they understand, which at this point is apparently nothing.
What would be more helpful is if MBIE didn't make a giant mistake with their handling of the NZ Building Code Acceptable Solutions and encouraging local councils to behave in the most unobstructive and unprofessional way possible. The environment we have now for obtaining building consents is entirely the National Government's fault. We could be using a lot less professional resources on each consent and start looking at construction efficiencies instead of adding lots of excessive costs to projects.
Cop this..Promises, promises. Stop exposing yourself. It ain't pretty.
http://www.scoop.co.nz/stories/BU1611/S00464/english-prison-population-…
I have not been rude David, but I would have liked to be. The consequences may be too dire.
Apartment values in Auckland are low and land costs are high. Land in Sydney costs 30% less and apartments sell for 50% more. International construction firms are capable of doing basic maths. So the RBNZ may be out of luck.
There are only two ways to solve Auckland's building problems:
- everyone can leave.
- the council can stop constricting land supply.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.