New home output will be down by as much as 15% by the end of the year as a result of the hard Covid lockdown ordered last month.
That could mean at least 1900 fewer new homes in Auckland alone this year, according to John Tookey, professor of construction management at Auckland University of Technology.
Tookey says the alert level 4 restrictions brought in to combat the Delta variant of Covid-19 has turned what was “wicked” problem into a “fiendish” one, with building sites in Auckland closed for more than a month, and sites outside of the city closed for several weeks.
While the move to alert level 3 for Auckland this week means construction in the city can begin again, the lockdown has added a new layer of difficulty for the industry, which already faces worsening labour and materials shortages.
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“The lockdown is going to have a massive flow-on effect on the backlog of demand in the housing market,” Tookey says, stressing that the loss is in potential output.
Even though outside of Auckland is at alert level 2, builders nationwide are dependent on construction materials coming from the city, and as a result, aren’t necessarily being as productive as they could.
“Auckland has a ripple effect through the rest of the economy. The total lost production is likely to be six to eight weeks in Auckland and five to six weeks nationally. This is more than 10% of the total number of houses [the country] anticipated building this year.”
With more than 19,000 consents in Auckland in the past year that could mean 1,900 to 2850 fewer houses being available to accommodate people this year.
An important point to note, he says, is that the number of homes built by the end of 2021 might look not much different from last year. That’s because many more were in the pipeline and comparing this year’s figures to last year’s masks what would have happened had builders not been forced to down tools as a result of the lockdown.
Before Covid, the underlying trend was upward, with consents increasing by around 16% per annum. Even then consents were barely keeping pace with demand for new housing.
“There was already a substantial backlog [in new home building]. Where it’s all going to go [pear-shaped] is the capacity to deliver on what we’re promising. It's a multi-layered problem that's beyond wicked. This is fiendish.”
The issues facing the industry include:
• Skills shortages exacerbated by closed borders;
• Supply chain constrains and materials price increases;
• The economy being is hooked on cheap money, driving real estate ahead of other productive investment;
• Regulation issues in terms of the Resource Management and Building acts;
• Councils’ consenting and compliance backlogs and also issues such as councils holding ultimate liability instead of requiring architects, builders and others to hold suitable indemnity insurance; and
• Too many ordinary New Zealanders seeing property investment as their main retirement strategy.
“If you if you if you tweak any one of the factors, then you affect all the others,” says Tookey. He has in the past criticised both Labour and National’s approaches to the problem as being too simplistic. That includes National’s policy of freeing up land and Labour’s policy of building 100,000 houses without investing sufficiently for that to happen.
Building has been growing organically in the country, he says, but organic growth isn’t enough. “We've been dealing with organic growth for many years and that's fine, but we're starting to creak at the seams.”
Tookey says New Zealand does need to use more pre-fabrication in building. It’s expensive to get off the ground, he says, and requires constant use of the technology to pay off initial investment costs.
Like everything there is a “but”. Tookey says councils that haven’t kept up with the three-fold increase in pre-fabrication over the past 10 years. The inspection process assumes the building is happening onsite according to traditional schedules, which creates a bottleneck in the building process for pre-fabricated construction.
Prior to lockdown government building programmes were producing decent numbers of homes, after three years in the doldrums thanks to ill-conceived KiwiBuild scheme, says Tookey. “The politicians involved did not want to hear anything outside of their ideological frame and as a result you had this three-year period of under investment, which could have been turned around by basically doing what we're doing now.”
Statistics New Zealand data has shown a steady upwards trend of building consents. The latest month of data available at the time of writing was July 2021 with 4,211 dwellings consented of that 2,315 was houses.
Likewise the value of building work on new residential buildings is rising from $11.044bn in the year ending June 2017, to $15.852bn in the year ending June 2021.
The latest Stats NZ figures for filled jobs in the construction industry where filled jobs rose 2.2% or approximately 3,700 jobs in the June quarter. The latest figures are yet to be released.