Warning of failures to follow Ebert’s fall
There may be more casualties as the under-pressure New Zealand construction industry battles to keep up with demand.
High-profile failures this year have drawn attention to the ‘‘razorthin margins’’ that construction companies face, and the difficulty they have in making projects pay.
When Ebert Construction went into receivership this week, almost 100 staff were left in the lurch and purchasers of off-the-plan apartment developments, such as Union Green in Auckland, faced being left out of pocket.
But there are warnings of more pain to come.
The Ministry of Business, Innovation and Employment’s National Construction Pipeline Report for 2018 shows significant levels of building work on the horizon.
Dwelling consents are forecast to exceed all previous records, reaching 43,000 a year in 2023, an increase of 39 per cent from last year.
Non-residential building work, which is 22 per cent of the country’s construction work by value, is forecast to continue at much the same rate as at present through to 2020, with a peak in activity next year.
Professor John Tookey, who heads AUT University’s school of engineering, computer and mathematical science, said the pressure being put on the industry would cause tension.
‘‘The big problem is that we as a society are expecting industry to step up and expand the capacity of the housing sector, in particular, in order to deliver our social and societal need,’’ he said.
‘‘Practically, collapse occurs when a company becomes overextended and takes on more than it can cover. So stepping up capacity will inevitably drive further insolvencies.’’
There was probably enough capacity to deliver the commercial projects required, he said, but not for housing. ‘‘The margins are not that great in housing and the orders come in randomly.’’
He said the Government could help with the way it managed Kiwibuild, the project to build 100,000 houses in the next 10 years.
‘‘Collapse occurs when a company becomes over-extended . . . So stepping up capacity will inevitably drive further insolvencies.’’ Professor John Tookey
It could start putting in significant orders for Kiwibuild to create a pipeline of work, he said.
‘‘Everyone wants to see Kiwibuild succeed, but we are not seeing that necessarily happening at the moment ... If a housing company goes belly-up in the middle of Kiwibuild because it’s run out of money, what happens then?’’
Nzstrong head Chris Hunter, a former Hawkins chief executive, said it was a very tough time to be in the market. Hawkins was sold to Downer, and the division to manage legacy projects, Orange-h, went into receivership in May. ‘‘It’s the most dangerous part of the cycle.’’
Input costs were rising and could not necessarily be controlled, and contracts had risks that could not be managed by contractors.
Councils were not helping by changing consenting processes, which added time and cost, he said.
‘‘If the pipeline of [vertical construction] work does proceed, we are already at capacity now. I can see the sector further struggling. It might say we can’t do any more.’’
There were no top-tier building companies left that were owned in New Zealand, he said.
‘‘Who at the top end of town is there to build these projects? That will present future challenges.’’
But economist Shamubeel Eaqub was less concerned about the impact of business failures on the sector’s ability to deliver.
‘‘The people haven’t gone away, only the structure. You shouldn’t think because a company fails all the IP [intellectual property] and stuff is gone,’’ Eaqub said.
‘‘If anything, that’s what was needed because they had got into contracts they couldn’t manage … Construction companies are at the bleeding edge of any cycle. At some point they do start to fail.’’