Construction industry split on future outlook

The Registered Master Builders have released the findings from its annual State of the Sector survey – and results showed a split in the industry’s outlook on the future

Just over half (52%) of respondents said they have a strong or steady pipeline of work in the future, compared to the 48% who said they’re seeing a decline in available work.

Despite the split, the building industry isn’t optimistic about the future. More than half (66%) of survey respondents are pessimistic about the overall state of New Zealand’s economy and predicted that economic conditions are going to get worse.

This marks a stark contrast to 2022’s survey, which showed that 69% of builders thought they’d be no worse off in the coming 12 months.

Chief Executive of Master Builders David Kelly said that there are a variety of reasons why builders might feel pessimistic about the future despite maintaining a strong or steady pipeline of work.

“Changing economic, political and environmental conditions are continuing to create a sense of uncertainty for many businesses. Master Builders has been working with our membership to help prepare for changing circumstances, but unlike the global financial crisis, where there was a sudden drop in work, change throughout the last few years has been more gradual. This compounding pressure has varied in impact for different businesses at different times up and down the country.”

Kelly added that while it was encouraging to see 52% of respondents had a steady pipeline of work, the reality was a little starker.

“Whilst it’s heartening to see a portion are keeping a steady workflow, they’re having to adapt to the current climate by reducing overheads, focusing on sales and marketing, and looking to new markets such as renovation work.”

Interest rates starting to bite

More than 1,000 sector participants and homeowners who built during the last two years responded to the Master Builders survey. Of those who responded, 83% believe that finance will be a problem moving forward as inflation and interest rates rise.

Kelly added that high interest rates are keeping demand down in the residential sector.

“People are thinking twice about whether now is the right time to be building a home. The consequence of this is that it acts as a bit of a handbrake for the residential construction sector.”

If interest rates and inflation stays high, Kelly believes that it will have a negative impact on affordable housing – which will contribute toward a vicious cycle of housing.

“It’s a key part of the market where the sector needs support to build, or our country’s housing woes will get worse. The Government has provided mechanisms to support the sector, and we would like to see these programmes extended as we work through the current economic cycle.”

Not all bad

The survey responses weren’t all gloomy, with only 34% of respondents saying supply chain issues were a problem, down from 95% last year. Immigration, which is so often a hot-button issue, was also seen as a positive – 48% of respondents say they can bring in the right people when needed, up from 7% 12 months ago.

Kelly said that border restrictions as a result of Covid-19 heavily impacted the flow of skilled migrants coming to New Zealand.

“Those border settings have now been revised, making offshore talent more accessible again – but it isn’t like turning on a tap. Sometimes, it takes time for things to flow as they once did.”

Permanent apprenticeship help needed

Additionally, nearly 66% of respondents are employing apprentices thanks to schemes such as the Apprenticeship Boost – legislation that Kelly called on the Government to make permanent.

Not all builders think that government regulation is working, with 65% saying it was an issue, and 50% had grievances with the consenting system. This remains similar to 2022, where builders highlighted consent delays as an issue for the sector.

“Whilst consenting remains a key issue for the sector and homeowners, respondents to the survey have seen marginal improvements over the last 12 months, although this may reflect slower demand taking pressure off the Building Consent Authorities rather than process improvement. Master Builders supports MBIE’s consenting review and we look forward to continuing to work with them to address this critical part of the building system,” said Kelly.