Housing is capability bound
Auckland’s housing crisis has taken years to build up to its current state.
Arecord number of homes – precisely 13,332 - will be built in Auckland next year, Building and Housing Minister Nick Smith forecast last week when he released the latest annual National Construction Pipeline Report.
Three serious problems arise, however:
❚ This will barely beat the 2003-05 record of around 12,000 a year.
❚ By 2022, the completion rate will ease back to the 2003-05 level, the report forecasts.
❚ At this inadequate level, demand for Auckland homes will continue to outstrip supply. So, why can’t the construction sector turn out more homes? And what are builders and the government doing to overcome the constraints?
The best guide to builders’ woes is the 2012 report on housing affordability from the Productivity Commission, available at nz2050.com/ProdCommHousing.
Chapter 10 analyses a long list of failures, from the small-scale jobbing nature of most home construction and failure to embrace innovation, to weak competition in the supply of building materials and inadequate business and construction skills.
The construction sector’s productivity has flat-lined since the early 1990s, while economywide productivity has risen by some 25 per cent.
The Key government was long aware of the problem. In 2010, it established the Building and Construction Productivity Partnership, to lift the sector’s productivity by 20 per cent by 2020.
This became a massive exercise involving people in the sector and government. The early work was encouraging. For example, the Partnership believed it was possible to cut the time from concept to completion of a house from a typical industry average of 49 weeks to 28 weeks.
But after the Partnership released its first reports, the government shut it down in 2014. Its work plan and some of its reports are still available at
nz2050.com/MBIEprod. Sadly web links to some key research no longer work.
MBIE cites gains and ongoing work. But these are heavy on data collection, guidelines and information systems. They are very light on innovation, productivity and capacity building.
The Partnership foundered for a variety of reasons, says the industry leader of one of the workstreams. Three key ones were: the sector was swamped by the Christchurch rebuild; there was ‘‘no real ownership and leadership’’ of the process; and MBIE ‘‘did not deal with the issues from a whole-of-system perspective.’’
‘‘We’ve gone backwards for the past 10 years,’’ says a construction company owner, who is a respected industry leader. One particular problem was the loss of the Department of Building and Housing when it was absorbed by MBIE.
There is progress, at least in Auckland. Land supply is increasing sharply, thanks to the creation of Special Housing Areas and fast-track consenting processes.
However, small companies building only a few houses a year dominate. They are incapable of higher volume or even moderate innovation. Those two challenges will fall to a handful of companies. But they face acquiring capital and skills to build faster and better.
Even current construction activity is straining builders and regulators. Auckland Council, for example, is reporting a rising trend of shoddy practices. No wonder, the construction sector has been irresponsibly muted about the housing crisis.
These crucial issues of capacity, capability, innovation, cost and quality are less intense in nonresidential construction. but its constraints are very real too.
Yet, according to the government’s 30-year infrastructure plan, central and local governments will spend over $110 billion over the next 10 years on assets.
Clearly, the construction sector and government can’t meet the nation’s needs.
The construction sector's productivity has flat-lined since the 1990s.