Builders warned boom coming to an end

The residential building sector is facing a downturn, but there is little appetite within the industry to make the changes needed for long-term growth, an economist says.

Record high consent and activity levels have led to an industry boom over recent years, with construction now the country’s fourth-largest employer, accounting for about 10.6% of the workforce.

But Westpac has just released a report into the industry which made it clear the slowing economy meant the boom days would not last, and it was time for building firms to plan how to navigate the downturn.

The need for change was well overdue as home building had problems with inefficiency, weak productivity growth, waste and poor communication, with projects often over-budget and delayed, the report said.

Addressing these issues was vital to improving competitiveness, and would make firms less vulnerable to the boom-and-bust cycle which characterised the sector, it said.

Westpac industry economist Paul Clark said the industry not only needed to get its financial house in order, but should also position itself for sustainable, long-term sources of growth.

Achieving sustainable growth required transformational change, and that meant large-scale investment in new processes and digital technologies, he said. It would involve the application of production and supply chain processes and concepts, long used in the manufacturing sector, to the building of houses.

The standardisation, prefabrication and modularisation of building products and components, and offsite construction, would be key. The processes involved would be underpinned by the latest technologies,

Westpac industry economist Paul Clark

including robotics automation, 3-D printing, sensors, artificial intelligence (AI), the internet of things (IoT) and big data.

But while the benefits of doing this would be huge, for many in the industry the size of the investment needed would be prohibitive, Clark said. ‘‘Add to that the small size of the New Zealand market, and the relatively high returns already enjoyed by the sector, and it’s perhaps not surprising that there is limited appetite for seismic change.’’

Despite this, meaningful change within the building industry was still achievable, he said. ‘‘Some elements of onsite building work could be pushed back up the value chain. Not unlike what happens in the global vehicle manufacturing sector, manufacturing ecosystems would work together to produce standardised fabricated building elements that builders would install onsite.’’

There was also scope for more imports of modular units from countries, such as China, that were better able to generate economies of scale, he said.

Clark said that in future the industry was likely to consist of a smaller number of firms, but they would increasingly be installers rather than builders as people knew them today.

Traditional builders would not disappear, but, increasingly they would be geared to the niche end of the market, and focus almost entirely on bespoke luxury homes, he said.

The latest building consent figures, released on Thursday, showed issuance was softening from the record highs, with the annual consent figure in December 16% lower than at the same last year.

Higher interest rates, cost-ofliving pressures and a weakening labour market were limiting demand for new dwellings, while the financial incentives for housing development were less attractive because of rising interest rates and building costs, and falling house prices, economists said.

The industry not only needed to get its financial house in order, but should also position itself for sustainable, long-term sources of growth.