Busting the boom-and-bust

Master Builders has released a report calling for the next government to make critical interventions in the construction industry to alleviate the boom-and-bust cycle

The document, titled Building a Better New Zealand: Election Manifesto 2023, calls for housing to be designated as ‘critical infrastructure’, which would allow government to “take faster and more definitive action in the market”, as well as other high-level changes.

“We recommend the Government continue to streamline and elevate building and housing as well as infrastructure under one more senior ministerial portfolio,” said the report. “A stable portfolio under a senior minister would allow greater strategic focus on a sector, which is vitally important to New Zealand’s economy and New Zealanders’ wellbeing.”

Master Builders also urged the Government to continue spending on building and infrastructure, even during poorer economic conditions, to ensure a strong pipeline of work and that key projects can be carried to completion. One way the report suggests tackling the boom-and-bust cycle is to avoid the suspension of government projects, which tends to overheat the market once conditions improve and funding is restored.

How to avoid overheating

“While the changing market conditions mean government spending should be closely monitored, New Zealand’s infrastructure deficit is a long-term issue that cannot be postponed. We recommend government continue its public infrastructure pipeline. This must include social housing, and not repeating past mistakes, where building stops in a downturn and comes back in a boom, further overheating a stretched market.”

A further step the Government could take towards smoothing the boom-and-bust process is to support other affordable and social housing providers and look into the funding model used to pay for such projects, while also considering ”priming the pump” during economic downturns.

“Government must also address how infrastructure to meet our housing needs is funded. This is a financial burden on local government, and often stifles development. Government needs to be open to different funding models, that is, the not-for-profit sector, Iwi, and Kāinga Ora. This will require procurement models that enable the sector to build more and better.

“We also recommend that government should consider time-limited, counter-cyclical measures that would help smooth the disruptive effects on the sector of future bust cycles by ensuring long-term continuity of supply. This would include partial government underwriting of key developments to maintain a steady construction pipeline. Our research indicates that counter-cyclical policies, such as those offered in Australia, should be considered by government to help smooth and shorten the current bust cycles.”

State intervention isn’t the answer for everyone

However, not all agreed that state spending is the way to smooth out the boom-and-bust cycle.

“Not all builders want to work on government contracts and for many small businesses, working on state jobs is seen as a last resort because the margins are tight and the work is so prescriptive,” said Home Trends Builders director Peter de Gouw. 

To ensure a steady supply of skilled labour, Master Builders praised the work BCITO is doing to increase apprentice numbers – but expressed concern that the Apprenticeship Boost wasn’t made permanent. It would also like to see legislative change to “attract workers and simplify the immigration process”.

De Gouw did agree that a consistent and predictable immigration policy would help the industry – alongside other policy considerations.

“Maintaining a consistent immigration policy is extremely important,” he said. “We also need government to stop tinkering with the rental housing market, because the rule changes, such as altering tax breaks and other incentives, have a downflow effect and are damaging the construction industry.

“When demand for more investment properties is strong, there are a lot more flats and properties built but when government changes the law, the work stops quickly and that contributes towards the boom-and-bust cycle.”

“The interest rates are also killing home building,” he added. “Until rates come down, I can see work continuing to dry up.”

Government intervention opportunities 

Attracting more first-home buyers into the market could be one way for the construction sector to limit the ups and downs, de Gouw said, and government intervention could be better targeted to help that group into the market.

“That would especially help group home builders, which experience a decline in sales when first home buyers aren’t financially secure enough to purchase a property.”

Talking about government assistance for hiring apprentices, Nolan Building director Dan Nolan said a permanent scheme such as the Apprenticeship Boost would be a huge help.

“I believe a permanent subsidy would be in the best interest of the industry, as it helps businesses employ more apprentices, especially in less certain economic climates. In turn, this supports the growth of young people, who see the trades as a viable career, and they are less worried about being less go as a cost to the business when things get tight.”

Consent concerns

On the thorny issue of consents, the report highlights how 66% of Master Builder members are impacted by consenting delays. This is an area the organisation would like to see undergo considerable change, including:

Ensuring MBIE is resourced to use its regulatory powers and allowing MBIE to provide formal guidance and directives to building consent authorities.

Taking a builder’s credentials into consideration during the consenting process to “allow the system to recognise good players and relatively simple volume builds”.

Using more technology for online applications and virtual inspections.

An improved consenting system will “bring efficiencies and cost savings”, added the report.

Nolan agreed with the Master Builders’ assessment. 

“A streamlined consenting process would help overall. We find it particularly tricky when consents get outsourced by some councils and you do the work according to how the third-party has assessed your consent, and then a local inspector has a different view on the matter and then you’re asked to change aspects of the work. That can make it extremely difficult for builders to get projects over the line on time.”