Slowdown could ‘wreak havoc’
Industry leader says home inquiries down 70 to 80 per cent in six months
Abuilding industry leader says inquiries for residential new builds have plummeted 70 to 80 per cent — prompting fears of job losses and predictions some companies will struggle to survive the year.
Skyrocketing material costs, tougher bank lending, higher home loan interest rates and soaring inflation, which has hit 7.3 per cent, are being blamed for the massive drop in inquiries.
Master Builders Association national vice-president Johnny Calley said the slowdown had the potential to “wreak havoc” on the economy.
Another building company boss based in Tauranga said sales were down to levels last seen in 2008 when the Global Financial Crisis hit and predicted “real hurt” for the sector when house and land packages sold last year were built.
The Government said it knew construction was “facing accelerating headwinds” and it was working with the sector.
Calley, of Tauranga-based Calley Homes, warned some residential construction companies that did not respond to the sudden decrease in demand may not survive.
“We know from nationwide sales data across a lot of our members, that there’s been a decline in interest and a decline in demand of between 70 and 80 per cent over the past six months. Those numbers are eyewatering.”
Companies were trying to do business in a market where material price increases had jumped more than 20 per cent every quarter. There was growing concern customers could pull out of contracts if they could not get finance, Calley said.
The reduced activity could also mean redundancies, which would not bode well for the economy or industry, Calley said. “This is going to wreak havoc.” Stats NZ consent data shows in the year ended March, 50,858 new homes were consented nationally, up 24 per cent from March last year. Calley said in many cases, some of these were deferred.
He said the reduction in builder workloads was one silver lining for those who wanted to build in the future.
Classic Group director Peter Cooney said sales were down to levels last seen in 2008.
In his view, rising interest rates, and the uncertainty of where they would end up, were the biggest factors dissuading people from building a home. The effect of the slowdown on the economy would be massive, he warned. “Workloads are still strong from last year’s sales but going forward in six months it will be a whole different ball game. There is going to be some real hurt coming in the construction industry.”
It was the fourth property cycle Cooney had been through.
“This one has been a lot more sudden than we expected. I would anticipate that it will last until such time as interest rates begin to decline again which will be when inflation is under control.”
Venture Developments director Mark Fraser-jones also said new inquiries for houses were low and it would take a while to improve.
“Rising mortgage interest rates, rampant inflation that is the highest in a generation, generally low economic confidence and growing geopolitical instability . . .”
“The biggest uncertainty will be how long the cycle takes to turn around. The biggest challenge will be how to bring new housing back to an affordable level.”
New Zealand Certified Builders chief executive Malcolm Fleming said general feedback from its members indicated they had 12 to 24 months of work lined up.
However, inquiries had slowed and the market conditions next year would be different from the past two years when demand outstripped supply. “Going forward you would expect consumers to have more choice when it comes to builders. So those who are aligned to an association or are certified will fare better than those who aren’t.”
Corelogic chief property economist Kelvin Davidson said it was concerning to hear new build inquiries had dropped so dramatically. “Anecdotes like that usually turn into data as they are seeing that on the ground. It’s real.”
Davidson said demand for property was down across the whole property sector.
Some people had been cut out by higher interest rates and reduced mortgage availability, while others were choosing to wait and see.
The effect on the economy could mean a higher unemployment rate, he said, but other industries like agriculture, horticulture and, to an extent, tourism were on a more positive footing.
New Zealand Bankers’ Association chief executive Roger Beaumont said rising interest rates, albeit from historic lows, had a real impact on a borrower’s ability to afford home loan repayments. Another big factor was the consumer lending rule changes the Government brought in last December. Recent tweaks to the rules would not make a difference for most borrowers.
“Customers still need to provide detailed information about their spending. That results in a painstaking process and more loan applications being declined than before the December rule change.”
Building and Construction Minister Megan Woods said the Government knew the construction sector was “facing accelerating headwinds that impact on its ability to continue to build houses and infrastructure at the pace and scale that is required to support new housing”.
It had been engaging with the sector through forums such as the Construction Sector Accord.
She said she met yesterday with Master Builders and discussed what the Government could do to
“alleviate this counter-cyclical situation”.
It was also looking at ways to avoid putting extra stress on the sector, such as extending the timeframe for new insulation requirements.
Woods said the Government had a pipeline of public construction and infrastructure programmes such as building 18,000 public and transitional houses by 2024.
We know from nationwide sales data across a lot of our members, that there’s been a decline in interest and a
decline in demand of between 70 and 80 per cent over the past six months. Those numbers are eyewatering.
Johnny Calley