Construction industry hit by rising costs

More than 95% of those involved in the building industry pick escalating costs as the biggest challenge facing the sector, a report shows.

But it was just one of three key issues identified in the latest Master Builders State of the Sector report, which surveyed more than 1200 industry participants and homeowners.

Ongoing increases in the cost of products, freight, and labour, and the costs that came with delays which impacted on productivity, were considered a challenge by 96% of respondents.

That was closely followed by supply chain disruption, along with product availability and increasing product substitution, at 95%, while 67% picked skill shortages.

Master Builders chief executive David Kelly said all three issues were also prominent in last year’s report, but they were significantly more accentuated this year.

‘‘Additional costs and project delays are the consequence of the pressures facing the sector, and that is causing a rise in the number of customer complaints and disputes.’’

Building-product costs had jumped 30% in the past year, but skill shortages had long been a problem, Kelly said.

Almost 60% of respondents said it was harder to get the staff they needed than it was a year ago, and only 7% said the immigration settings in place at the time of the survey allowed them to bring in the labour they needed.

Thirty-one per cent were bringing people in, but with difficulty, and 62% were not able to bring in the skilled people they needed.

Since the survey, the Government has announced immigration changes which will boost the numbers allowed in to work and has given key sectors, including construction, a temporary exemption to the median-wage requirements for overseas workers.

Kelly said this would help, although it did not solve all the problems. But it was also reassuring that apprentice numbers were rising and that, of those surveyed, more were taking on new apprentices than ever before.

Despite the challenges, the report also revealed signs of underlying resilience in the industry, he said. While 79% of sector participants thought the economy would deteriorate over the next year, only 31% of builders thought their own businesses would be worse off.

Kelly said many had strong order books, consent numbers remained high, and there was still demand across the sector, especially in commercial construction.

‘‘There have been signals an economic downturn is on the way for some time. It’s all part of the cycle, but the pace at which it happens can make a big difference.

‘‘The global financial crisis (GFC) caught many in the industry by surprise, and that added to the problems. But this time more people have been preparing, taking on board lessons from the GFC, and working out what to do to get through.’’

For some builders that might mean changing their focus from new builds to big renovation and extension projects.

There was an opportunity to shape the direction of the current cycle, because the market might be turning, but that did not mean the country should talk itself into a deeper downturn, he said.

‘‘This is very different to the previous downturn after the GFC, when all work just stopped. This time we still have strong order books, and the Government is committed to a large civic building programme.’’

While new-home build inquiries have declined steeply since last year, and residential construction intentions have plummeted, experts believe the industry will avoid a GFC-style crash this time around.

‘‘Additional costs and project delays are the consequence of the pressures facing the sector. . . ’’