Early signs the predicted downturn in building activity is already starting to bite

Property / news

The value of building work being undertaken dropped by $459 million in the first quarter of 2023

6th Jun 23, 11:35am by Greg Ninness

The building industry is probably already in the early stages of a downturn, according to the latest figures from Statistics NZ.

Building consent figures have been suggesting a pending downturn in construction activity for several months, but that is a forward looking indicator of future activity levels.

However Statistics NZ's latest survey of building activity suggests the downturn could already be starting to bite into current work levels.

It found that $9.071 billion of building work was commenced in the first quarter of this year, down 4.8% from the record $9.53 billion in the fourth quarter of last year, a decline of $459 million.

Building work commencements usually decline between the fourth quarter of one year and the first quarter of the next, but the latest decline of 4.8% was significantly greater than previous years.

In the first quarter of last year the value of building work commenced was down 3.3% from the previous quarter, and in the first quarter of 2021 the value of building work was down just 2.0% from the previous quarter.

The value of residential building work commenced in the first quarter of this year was down 5.6% compared to the fourth quarter of last year, while the value of non-residential work was down 3.2% over the same period.

It's likely the amount of work being undertaken by the construction industry has declined by more than the above figures suggest. That's because high levels of inflation would have helped prop up the value of the work being undertaken, even though the volume of work would be on the slide.

Statistics NZ also produces a parallel set of figures expressed in inflation-adjusted September 2022 prices.

Using these figures, the value of all building work commenced in the first quarter of this year was down 6.1% compared to the fourth quarter of last year, with residential construction down 6.8% and non-residential construction down 5.0% over the same period.

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42 Comments

by Averageman | 6th Jun 23, 11:46am 1686008761

Builders that priced work pre covid and folding left and right. Anyone that purchased land for speculation in a big way will likely do the same.

by Pa1nter | 6th Jun 23, 11:53am 1686009197

Pre and post covid. It's easily been taking 30-50% longer for completion than what a construction firm would expect. Many have been charging labour and materials for the past 18 months or so.

by HughJorgan | 6th Jun 23, 12:07pm 1686010056

Too many builders have taken on too many jobs and subcontracted them out. The builder doesn't care how long the build takes, only that he can keep charging.

Builders need to get back to focusing on a single build and delivering it quickly and efficiently.

by Pa1nter | 6th Jun 23, 12:09pm 1686010163

Nah, it's mostly a combo of delayed materials, and lack of labour due to increased absenteeism/experienced older dudes retiring.

A builder wants to finish anything as quickly as possible, so they can get paid and get to the next job.

by BeeBop | 7th Jun 23, 6:38am 1686076709

But the Ponzi scheme means they need to take on the new project for residential homes.

A new deposit to fund the previous project (Masterbuild screw-you scheme)

Then the house of cards falls down.

Many are hurt.

by K.W. | 6th Jun 23, 1:53pm 1686016409

One down the road from me (7 townhouses) - land was bought Dec 20, townhouses sold off the plan in March 21, only just being completed in May 23. One of the largest NZ builders as well, so no issues with access to trades/money/materials. All purchased by investors, all currently being rented out for a gross yield of 3.8%

by HughJorgan | 6th Jun 23, 2:09pm 1686017380

All crossing their fingers for a National Government. What a boring dystopia.

by rastus1 | 6th Jun 23, 4:28pm 1686025720

..buying something brand new and having tenants turn it int a second hand home seems a great way to destroy capital.

by Pa1nter | 6th Jun 23, 4:56pm 1686027385

It's worse if someone's buying one to live in themselves.

by rastus1 | 6th Jun 23, 4:29pm 1686025750

by Independent_Observer | 6th Jun 23, 11:54am 1686009250

And yet reading on another article we just let in thousands of migrants to help out our building sector.

What are these people going to do as the industry contracts as the credit from banks keeps reducing?

by Juzz | 6th Jun 23, 12:07pm 1686010056

They'll be too busy to work as they'll be in auction rooms buying up all the houses

by Flying high | 6th Jun 23, 12:39pm 1686011974

Teach them how to pull tits on a dairy cow. The dairy industry is thriving,,, wait a minute.

by K.W. | 6th Jun 23, 1:57pm 1686016654

They work for cheap, so they will replace the locals who cost more. Until there is no work at all, all that will happen is cheap labour replaces expensive labour. I wouldnt buy anything built in the next few years, they will be the 2030's version of leaky buildings.

Also under the TPP deal, Chinese companies can send over chinese workers, and pay them chinese rates in chinese money in China. So Chinese developers will be fine, local ones will be bankrupt.

by Small Kev | 6th Jun 23, 7:02pm 1686034955

“I wouldnt buy anything built in the next few years, they will be the 2030's version of leaky buildings.”

Actually many houses built after 2016 are rushed and have quality issues. Those houses were built by those “ I don’t care I might not be be here tomorrow” builders. They look nice and new initially but when upon closer inspection the fit and finish are just shocking. Leaky home syndrome 2.0 for sure.

by BeeBop | 7th Jun 23, 6:41am 1686076874

Worst labour and trade efficiency I saw was through 2021 and 2022.

Finish 2 pm on Fridays.

Sick on Mondays.

Slow slow slow.

Now we have imported labour and productivity on site is great.

Cradle to grave in NZ entitlement has screwed our country.

by K.W. | 6th Jun 23, 1:50pm 1686016233

Lots of "as is where is" properties, houses on corner sections, and old rentals on big sections suddenly hitting the market at the moment. Turns out landbanking is really expensive at 7% (or more if second tier finance) is really expensive LOL

But I think its probably nothing compared to those developers who are currently working on large (30+ dwelling) projects because trying to sell that many completed dwellings into a falling market is going send them bankrupt.

by Flying high | 6th Jun 23, 4:41pm 1686026516

Over 4000 across the country, thats quite a few.

The problem is that as, is and where are very generic, common words on their own

by dumbthoughts | 6th Jun 23, 11:53am 1686009234

Had a great long weekend, got out for plenty of walks with the dog and managed a few hours in front of the piano when the bad weather rolled in. Good to forget about the problems of the world and all that.

Logged in to my emails this morning to a report of a "disastrous collapse" (their words, not mine) in sales for a product that the client sells into the residential construction industry. The only inquiries they are getting are for low value domestic orders e.g. homeowner wants one unit for themselves. It's gone from an unpleasant drop to a 'we might have to start laying people off' free fall in the space of about 6 weeks.

If this flows through to my clients playing me, I guess I might have time to actually get good at the piano ... instead my wife makes me play with headphones on.

by Yvil | 6th Jun 23, 12:04pm 1686009869

Great post DT !

by Uncle Bulgaria | 6th Jun 23, 11:48am 1686008911

I challenged a phenomenal quote for labour recently and was told "I need to charge that so I can keep all my team employed for the next few months". An honest answer if nothing else.

by Juzz | 6th Jun 23, 12:03pm 1686009801

During the GFC we reduced our margins and invested in capital to increase productivity. We went from 30% sales from quotes to just under 90% for about 4 years running and resulting in employing more staff. If we had taken that approach we would have survived on core business but would have had to let go of premium staff who were difficult to replace.

by Chaosinflesh | 6th Jun 23, 12:16pm 1686010619

So - not charging for the actual labour required for the job then? On to the next one..

by HughJorgan | 6th Jun 23, 11:52am 1686009133

I would imagine builders are busy for the most part of the year.. next year they will have a problem!

Have noticed a number of building sites not sell in North Auckland. A few owners are going to be stuck with a problem.... going through the hassle of building just to get liquidity and realise a loss.

The market is not going to function when build rates are >$5k/sqm for a decent build.

by HouseMouse | 6th Jun 23, 1:40pm 1686015607

I think work will be falling off a cliff come late winter. Lots of projects near completion, relatively few just getting underway

by IT GUY | 6th Jun 23, 8:18pm 1686039486

new sites milldale etc are a dead zone

by SimonRo | 6th Jun 23, 11:54am 1686009286

Sounds like employment levels would be the yardstick we need to determine how significant this all is.

Or we can check in on independent gurus such as Tony Alexander- twitter directed me to his view in December 2021, no longer available on his website but - https://ndhadeliver.natlib.govt.nz/delivery/DeliveryManagerServlet?dps_pid=IE79655584

by Independent_Observer | 6th Jun 23, 11:59am 1686009593

When I view his articles, it reads more like propaganda and not the balanced opinion of a well-researched mind talking about their area of expertise.

by pigeonbox | 6th Jun 23, 12:33pm 1686011633

I was surprised to hear even Newshub/Mike McRoberts announcing that "now could be a great time for first home buyers to get into the market!"

To quote The Big Short.. it's possible that we are in a completely fraudulent system.

by rastus1 | 6th Jun 23, 4:30pm 1686025835

Great time to buy a soup kitchen more like.

by Independent_Observer | 6th Jun 23, 11:57am 1686009446

And here is the risk we are facing compared to other nations:

https://pbs.twimg.com/media/FxyeUY6acAI3wfQ?format=jpg&name=large

It is a long way back to anywhere that might be considered sustainable and balanced in the long run.

by Chaosinflesh | 6th Jun 23, 1:45pm 1686015933

And that only goes back to 2000 - it's far worse if you go back to 1990.

by nguturoa | 6th Jun 23, 12:41pm 1686012084

Land prices are more than doubled for what one could buy a 4 bed house anywhere in the country.

What do you expect to happen? Every 80 year old with a bit of land around their house wants in excess of million dollar so that can afford the Luxe retirement village.

Just imagine where the money is going in this country now. FHB buys highly inflated house to fund an old ones retirement in a luxury retirement village. Is this progress?

My prediction which I have told a few is that in next two decades NZ will be the playground of old and rich. Only others living in this country will be ones who clean bum of old rich people or their houses and utensils.

Greece, here comes NZ your way.

Young intelligent folks, run away while you still can and don't fall into that FHB buying trap set up by banks and your old folks or you will have to clean their bums for a living.

by Pa1nter | 6th Jun 23, 12:47pm 1686012424

What oasis, with cheap housing and a high birth rate (to counter an aging population) are the young people running to?

by HughJorgan | 6th Jun 23, 1:14pm 1686014090

Yeah, even the Metaverse is dead.

by K.W. | 6th Jun 23, 2:05pm 1686017157

Fortunately, with less than half of children attending school regularly, there will be no shortage of uneducated, unskilled New Zealanders to wipe their bums. The other half will presumably be working for double the wages in a real job in Australia.

by WestieAJ | 6th Jun 23, 1:29pm 1686014959

The building and construction sector contributes 6.7 per cent of real GDP and is the third largest employer, employing 295,300 people in the year ended June 2022. Net gain from migration for 2023 is set to hit 100000.

These are the construction related roles on the immigration Green List.

Tier 2 role eligible for work to residence: Backhoe Operator, Building Associate (Building Construction Supervisor),Bulldozer Operator, Crane Operator, Drainlayer ,Earthmoving Plant Operator, Electrician, Excavator Operator, Gasfitter, Grader Operator, Loader Operator, Plumber

Tier 1 role eligible for straight to residence: Civil Engineer, Civil Engineering Technician, Construction Project Manager, Environmental Engineer, Geotechnical Engineer, Project Builder (including Building Project Manager and Site Foreman),Quantity Surveyor, Structural Engineer

by HouseMouse | 6th Jun 23, 1:35pm 1686015331

Yes I have said several times before that the construction slump could result in a migration reversal.

by Juzz | 6th Jun 23, 9:02pm 1686042142

So I'm eligible for both teir 1 and 2, I don't feel incentives to stay here to be honest. My current role pays $40 more per an hour across the ditch.

by HouseMouse | 6th Jun 23, 1:34pm 1686015265

I predicted all this more than 1.5 years ago. Few took any interest. Maybe I had the occasional ‘DGM’ smear here. But mostly lack of interest.

For me it’s not rocket science, but maybe it is? Bank economists haven’t been talking about it much and The government have been denying it and even the latest Treasury report for the budget forecasts a minimal drop in residential investment. That raises three possibilities with their work:

1. They are woefully incompetent

2. They are politically influenced to produce flawed forecasts

3. They will somehow be right and residential investment will only drop by the 4% or so that they predict. Possible but unlikely, and I would sure like to know the basis for that very rosy view

by HouseMouse | 6th Jun 23, 2:13pm 1686017591

NZX50 fell sharply around midday, not sure if it relates to this news

by HughJorgan | 6th Jun 23, 2:37pm 1686019027

Probably this... https://www.stuff.co.nz/business/132239413/ebos-loses-2b-chemist-wareho…