People are often quick to climb in with criticism when things go wrong in the economy - but not till after the event. Hindsight is very comforting that way.
And yet, things seldom go wrong without at least some signs ahead – and usually it is very clear signs – that something is going wrong.
New Zealand governments - and this criticism is by no means confined to the current administration - have shown a consistent pattern over the years of ignoring developing problems until these are of a magnitude that engulf us.
There needs to be a change of attitude.
I was prompted to write this by the results of the latest ANZ Business Outlook Survey. Away from the 'headline' news in the survey of overall business confidence etc, was the specific findings of, in the words of ANZ chief economist Sharon Zollner, a "truly spectacular crash" in sentiment in the residential construction sector.
People, a downturn is coming. Have no doubt.
Now, clearly, if we talk about residential construction, it has been very hot. Statistics New Zealand figures show that we have been consenting new dwelling builds at a rate of over 50,000 per year.
However, there are clear signs that the unbelievably negative sentiment unfolding in the ANZ survey is starting to translate into the figures.
According to the Stats NZ figures, June was the third consecutive month in which the number of consents fell, on a seasonally-adjusted basis.
The number of consents in June was, on a seasonally-adjusted basis (IE taking out natural variations according to the time of year and state of the weather), over 11.5% lower than the number in March. Yes, over 11.5% lower.
Looking back through the (seasonally adjusted) figures, we actually have to go back to the period between November 2016 and January 2017 for the last time building consent numbers fell for three months in a row.
That's a long time.
And if we want to beat the three month sequence, the last time we had FOUR months in a row of consent number falls it was the period from May 2008 to August 2008.
Yep, that's right. 2008. Does the year ring a bell?
The Global Financial Crisis was the last time we had four consecutive months of consent number falls. And I'm betting now that July 2022 will see us match that 'record'.
People may accuse me of being alarmist by identifying a drop in numbers from historic peaks. And the industry view is that we are currently trying to build too many houses. The cost pressures in the industry certainly signal that.
Executives at construction giant Fletcher Building recently suggested a sustainable number of new builds for the NZ construction industry was about 35,000 a year.
So, okay. Accepted. But do we think that the numbers will slide down to a nice 35,000 and stay there?
Well, they might. History would suggest they will not though.
I think you could easily see the numbers of consents around halving (IE to about 25,000) within the next 12 to 18 months.
Remember also, that a consent is not a built dwelling. Chances are a fair number of the 50,000 dwellings consented in the year to June don't happen in the face of rampantly rising costs - and falling house prices.
The other point is, there's been a sharp rise in the number of multi-unit dwellings consented. And a commensurate fall in stand-alone houses.
If there's trouble ahead in the industry, what consents are most likely to be sacrificed, the ones for multi-unit developments, or the ones for single stand alone houses? I think we know the answer.
In fairness, it's hard to be sure whether a halving in consent numbers over the next year or so would be a problem or not. And we don't actually really know where we are with housing stock at the moment. Do we still have an undersupply? By how much?
What we don't want though is a repetition of the old boom to bust to boom and back again cycle.
The fact is it takes our building industry a long time to recover from the 'bust' period.
If we talk in June years (and all info here is sourced from Stats NZ), Auckland consented 21,609 new dwellings in the 12 months to June 2022. This contrasted with just 3223 in the 12 months to June 2009. It took many years to get from where we were to where we are now.
Likewise, with the nationwide picture, there were 50,736 new dwellings consented in the 12 months to June 2022. The low point of 13,539 was hit in 2011 (just to compare with the Auckland figures, for the June 2009 year, the national consents number was a little over 14,000).
That trough that Auckland and NZ hit was a heck of a trough. We can't just blame the GFC. Auckland's consent numbers nearly halved (from almost 13,000 to under 7000) in the period from 2004 to 2007. It may well have been interest rate rises that prompted that. But I don't remember any alarm being raised from the government.
So, New Zealand was significantly under-building houses, particularly in Auckland from about the mid-2000s onward. This situation pre-dated the Global Financial Crisis of 2008 but was then significantly worsened because of it.
For largely political purposes under the National government of 2008-17 there was large scale inbound migration. Labour, despite promises to the contrary, didn't stop the trend. This into a country not building enough houses. No foresight.
Look what happened.
Then, however, the closure of our borders in early 2020 gave use an excellent opportunity to properly get a handle on our population/migration issues.
There was a chance to put make moves toward a population strategy (start by answering the simple question – how many people do we want in this country?) And there was a chance to back this up with a sensible, but structured, policy on immigration.
We have not done that. Chance gone. Lack of foresight.
And you just know that the political response following the border reopening will be the ramping up of inbound migration again.
Oh, but at least we are building a lot of houses now, right?
Well, let's see about that. I don't know how many houses is the right number for us to build. But it needs to be planned. And if governments need to step in to smooth the flow of houses then they should.
The reality is that this Government should not be congratulating itself for annual consent numbers of 50,000 - it should already be seeing the obvious signs of sharp decline and making plans to ensure this will not be the precipitous decline I think it will be.
To finish up with a more general view of this lack of foresight and anticipation, let's talk inflation.
As of March 2021 we had an annual rate of inflation of 1.5%. But the signs of inflation were there well before it officially exploded, with the annual figure to June 2021 rising to 3.3% from that 1.5% as of March 2021.
Go back to the ANZ Business Outlook Survey again and it was discerning cost and pricing pressures from October 2020, more seriously from December 2020 and pretty darn seriously on a month by month basis from February 2021.
The warnings were there. They were blissfully ignored.
So, that's just two examples, well, three really if you include the migration mishaps. Stretching my mind back further I can think of the finance company debacle of 2007-2010. That too was one that could be seen coming a mile back as the sector mushroomed. But again. No government action till disaster had struck.
What is required to make this a more forward looking country? For us to actually take on board the signs as they emerge of trouble?
I think government departments must at least get inklings of problems ahead, but is there a culture of don't cause problems? Don't raise your head above the parapets with 'negatives'?
Our politicians like to climb on to obvious bandwagons, but they seemingly don't want to cause waves ahead of times either.
I'm not sure what the answer is. The fact is though, that without people in important places seeing and assessing warning signs and being willing to get their hands dirty by finding solutions before problems become too big, we are going to keep repeating all the same mistakes.
And yes, that is going to include flooding the country with migrants again at a time when the building industry is withering on the vine.
Not for the first time I say with all sincerity, I hope I am wrong.
What do you think will happen?
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