Manawatu Standard

Warning of failures to follow Ebert’s fall

- Susan Edmunds susan.edmunds@stuff.co.nz

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.’’

 ?? STUFF ?? The Government could use Kiwibuild to create certainty, one expert says.
STUFF The Government could use Kiwibuild to create certainty, one expert says.
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