A 2020 vision for NZ construction Opinion
Christmas is coming and New Zealand is eyeing its annual New Year stock take. This year-end ritual is a natural exercise in internal accountancy The wins and the losses; what comes next, and what should be prepared for?
2019 in the New Zealand construction sector presents an interesting smorgasbord of wins and losses. Some excellent, some less so.
The most obvious win is the continued growth of the construction sector – extending its multi-year boom.
Arguably this is one of the longest upswings in construction ever seen in New Zealand. In October we saw a projected further 9 per cent growth to $43 billion announced. This is an amazing run.
But construction industry high performance is a paradoxical concept.
The failure rate of construction companies is horrific. The fallout of Ebert’s failure in late 2018 fed forward into 2019 stressing companies.
We have seen multiple liquidations including Arrow International and Stanley Group.
Large clients lose money and have to rethink their development plans. Small clients building their dream homes lose everything.
There seems to be little concern at present in how to protect both clients and creditors in the context of our tendering and contracting system.
Construction companies become financially stressed to the point of failure. Then the players involved seem to melt away and rapidly reestablish themselves rapidly in a new business.
We have a systematic problem in our system of tender risk allocation in need of fixing.
In housing we have seen positive progress in total housing consents issued as we address a 27,000 plus home shortfall in Auckland.
New initiatives aiming to increase capacity in the sector have started. Recently Fletcher’s new prefabrication facility opened in Wiri.
Other prefabrication companies are coming on stream – even Bunnings touted a flatpack home system. Home improvement is morphing into home building.
Policy seems to either lag or impede progress. Government is redrafting the Building and Resource Management Acts simultaneously.
The intention is to streamline consenting and construction processes – and increase sector technical performance.
This huge undertaking will substantially disrupt the sector into 2020 and beyond. In part the redraft was in response to housing and infrastructure deficits throughout the country.
But in 2019 housing will be largely remembered as the year of KiwiBuild recalibration.
Phil Twyford was moved out as housing minister – in a move seen as a tacit acceptance of KiwiBuild programme failure.
KiwiBuild has to one of the most over-egged confections to hit the sector in recent years.
Sky high expectations were created, but then not matched by delivery. Everyone wants a high quality opportunity for first-time homeowners.
However, fundamentally, they were the wrong price point product pitched at the wrong demographic.
If you prequalify for KiwiBuild then likely you can afford a regular house. Total numbers of KiwiBuild homes have been tiny. The impact on total housing provision negligible.
Late 2019 saw the devastating fire at Sky City. The fallout from this will be substantial. Liabilities, warranties and insurance will take time to work through.
Court cases in the future to test the letter of contract law are likely. Hopefully this can be resolved without excessive impact on the sector generally or on Fletchers specifically.
Estimates of more than $250m to rebuild are cited. The only silver lining in the International Convention Centre cloud is that there were no fatalities.
Looking into construction in 2020 it is easy to imagine a range of critical topics for next year.
Inevitably, driving house construction will be high on the priority list. It is a given. Redrafting both the Building Act and RMA will have substantial impacts.
They could rapidly incur key skills shortages which we will struggle to make good from the current labour pool. This will impact both costs and require recruiting overseas.
Nationally, lack of infrastructure – transport and amenities – is an inhibitor of development.
While I do not believe the double deck bridge in Auckland will be on the list, other schemes are needed to facilitate accelerated development around our cities.
Prior to the general election 2020, the Government needs to offset negative KiwiBuild PR.
Currently KiwiBuild is an inevitable political stick used to beat Government. It is easy to imagine a scenario where some introduced scheme will be able to claim certain regular developments are KiwiBuild 2.0.
A quick win is needed to defuse attacks ahead of the election. Without it government risks accusations of an unhealthy attachment to an obviously dead bird.
Other prefabrication companies are coming on stream ... Home improvement is morphing into home building.