Gloomy forecast for small builders
A future where large construction firms dominate the home building landscape and smaller ones are left competing for alterations work has been forecast by Westpac economist Paul Clark.
Clark said the boom-bust cycle of New Zealand’s construction industry led to an influx of small firms when times were good, and their exit when times got bad.
‘‘Given how we see the competitive dynamics in the industry playing out … we think that over time, the industry will morph into something more like that of Australia’s, where larger residential construction firms predominate,’’ he said.
‘‘Large firms will increasingly dominate across all market segments, except for alterations, repairs and maintenance work, where a declining number of smaller players will operate.’’
A report by Clark on the state of residential building said that at the end of last year, there were more than 18,500 building firms, an increase of 58 per cent since 2000.
But most of these firms were very small. The average number of employees was 2.3, while 86 per cent had five or fewer staff.
The levels of scale were markedly different in Australia. ‘‘Only a handful of firms in New Zealand build more than 100 houses a year, compared to over a third of companies in Australia.’’
Here, smaller firms needed to be competitive to survive, and this came down in part to their ability to cut unit construction costs.
Larger firms could more easily afford to invest in new methods such as off-site prefabrication and greater use of 3D printing.
The continued lack of innovation by smaller firms was dragging the industry’s overall productivity down, Clark said.
Market segments were another factor in how well a company could compete, he said.
While standalone houses would continue to be ‘‘the bedrock’’ of the industry, large firms would increasingly turn to medium- and high-density residential buildings to meet changes in demand.
‘‘A particular area of growth will be terraced housing and lowlevel apartment blocks, which currently attract high profit margins.’’