Confidence is builders’ biggest concern
Building industry leaders say keeping people’s confidence in construction will be key as builders return to work this week.
Builders packed up before Level 4 lockdown in March, not knowing if their order books would remain as they left them, or whether clients would pull out.
The country’s biggest house builder, GJ Gardner, says that more than 70 of its customers at the early design stage are reassessing their plans.
Construction is the country’s third biggest contributor to the economy and Infometrics estimates there will be 29,000 construction job losses as a result of a Covid-19 recession, including commercial building and infrastructure.
David Kelly, chief executive of Master Registered Builders Association, said getting confidence back in the market was a key issue.
‘‘I think it’s really the future pipeline. What I’m hearing so far is most people who’ve made a commitment who have started down the design track, as long as they’ve still got a job, most people are carrying on.
‘‘I think it will be the next wave, that’s going to be the question.’’
Steve Evans, the head of Fletcher Building’s residential arm Fletcher Living, agreed ‘‘consumer confidence is everything’’ as the industry sailed into unknown waters.
But ‘‘I think it’s inevitable that we will see a reduction in the volume of houses built next year’’.
‘‘And I feel not just for the customers who might not get the house that he wants or she wants, but also the builder [whose] customer may decide to change his or her mind.’’
Another area of concern was bank finance. While the Reserve Bank has relaxed loan-to-value ratios, which reduces the amount needed for a deposit, the banks did not have to follow suit.
‘‘The fear from previous events is that banks have tightened up their lending rather than loosen their lending’’.
Construction was driven by employment, migration and sentiment about house prices but the big difference with the Covid-19 downturn and other crises was that houses were still needed, Evans said.
‘‘The depth of under-supply is still there, and the market settings with regard to interest rates and the like are substantially better’’ than at other times of crisis.
Both Evans and Professor John Tookey, at AUT’s built environment department, thought residential building could be involved in the list of ‘‘shovel ready’’ projects being drawn up to kickstart the economy and save jobs.
‘‘The average house that we build probably has 20 smaller companies supporting us in those home builds so it’s not a question of supporting the little guy rather than the big guy, it’s actually supporting the industry,’’ Evans said.
If the Government was serious about supporting building jobs, the quickest way was through supporting deferred maintenance such as schools, Tookey said.
‘‘There’s literally tens of billions of dollars of deferred maintenance throughout the country that you could easily commit people to and would support the industry over the next six months to a year.’’
Kelly said residential was ‘‘the hardest part’’ of the construction sector to bolster, because it was not as conducive to big building programmes.
‘‘Residential construction by dollar value is bigger than horizontal and commercial put together and the vast majority of it is from individual customers. So you can’t just substitute a Government programme.’’
The Infrastructure Industry Reference Group is reviewing a large volume of applications for ‘‘shovel-ready’’ projects, with priority projects to be announced in May.
Fletcher Living is thought to be the country’s biggest spec builder, creating 1000 homes a year without a customer lined up
But the country’s largest builder by volume is thought to be GJ Gardner, which builds over 1500 houses a year and employs 440 workers.
Grant Porteous, managing director of GJ Gardner’s master franchise holder Deacon Holdings, said the company was in a secure financial position and only three builds had been put on pause.
Another 72 clients at the earlier design stage were also reassessing their financial situation.
‘‘What I’m hearing so far is most people who’ve made a commitment who have started down the design track, as long as they’ve still got a job, most people are carrying on.’’
David Kelly
chief executive of Master Registered Builders Association
‘‘We are typically a cash flow positive business. We don’t live on huge funding lines,’’ Porteous said. Porteous expected the industry was in for pain. ‘‘Our industry is driven by consumer confidence ... Many builders will not be well prepared or have managed their finances well.
‘‘I believe the Infometrics report showing our industry going from some 34,000 permits per annum (including apartments) to a 15,000 permit market is not overstating the decline.
‘‘Good builders, with good systems, low risk models, good support infrastructure, a good history of success with their banks will navigate this challenge and get through.’’