Construction sector calls for state help
Well-timed investment could smooth boom-bust building cycles, report says
The $18 billion dollar construction sector wants Government help to smooth out volatile boom-bust cycles. A PwC report out today — commissioned by the Construction Strategy Group and the Construction Industry Council — says state assistance would go a long way to helping the sector flourish.
“A recurring theme from our interviews with industry participants was that the Government should take advantage of the current conditions and work more closely to smooth volatility in the cycle,” the report said.
“The same value of funds would be spent but the timing would be used as a tool to smooth volatility when private sector demand drops. There is the potential to avoid a bust if Government sector demand can counteract falling private sector demand,” it said.
“Counter-cyclical demand by the Government would reduce the volatility present within the sector and in effect reduce the magnitude of the bust. Certainty of work and less fluctuation in work supports labour force planning as workers may be less likely to leave the sector if the volatility within the sector is managed better, improving sector performance and productivity.”
The sector is dogged by issues which result in low productivity and poor overall performance and the report says without change, it will struggle to meet demand, citing the 422,000 new Auckland dwellings needed in the next 30 years.
“In general the same structural issues that were identified in 2011 remain today,” it said.
Those include problems with labour, capital, operations, consumer choice and regulation.
However, Hugh Pavletich, coauthor of the annual Demographia housing affordability study, said the PwC report was unnecessary.
“It is far better to be keeping the focus on the major structural problems, being the abolition of urban limits and the proper debt financing of infrastructure, instead of wasting everyone’s time with unnecessary and self-serving industry welfare ideas,” Pavletich said.
Shamubeel Eaqub, an independent economist and 2013 construction pro- ductivity report author when he was the NZIER’s principal economist, backed the PwC report’s call.
“There’s nothing wrong with the overall thesis of the report. We have very large swings in the construction cycle because the private sector is very sensitive to the economy, interest rates, etc.
“But the Government tends to be more stable and longer term in their thinking. It makes sense for the Government to be buying when the cycle is down,” he said, particularly because the state would possibly drive a better financial deal in such times.
He acknowledged the state was a relatively minor construction sector client compared to the private sector.
The report said construction
We have very large swings in the construction cycle because the private sector is very sensitive to the economy. Shamubeel Eaqub, economist
employed 178,000 full-time equivalent staff, contributed 8 per cent of the country’s gross domestic product and was of a similar value to that of the wine industry.
Nick Smith, Minister of Building and Housing, says the building boom continues to gather momentum.
Statistics NZ said the annual value of building consents for new homes exceeded $10 billion for the first time in the 12 months to August 2016 when 29,627 new homes were consented. But the value of consents issued in the non-residential sector was $18.6b in the year to August, it said.
Kirk Hope, BusinessNZ chief executive, backed the report, saying his organisation had been working with the Ministry of Business, Innovation and Employment on formulating and improving state procurement practices.
“What’s needed is more work to educate government procurement managers in the use of those principles, in taking a more sophisticated, supplier-friendly approach to procurement, and taking into account whole-of-life value and economic impact, not just cheapest up-front price,” Hope said.