BusinessDesk: "How do we ensure the greatest building boom ever is not followed by the greatest bust?”

BusinessDesk: "How do we ensure the greatest building boom ever is not followed by the greatest bust?”

The boom-bust cycles that drive the New Zealand construction industry are adding to its low productivity, says accounting firm PwC in a report for the Construction Strategy Group.

The sector lobby group had Minister for Building and Construction Maurice Williamson launch the report in Auckland, as part of an effort to focus government attention on the skills shortages likely because of the Christchurch rebuild and the potential for an industry bust after that surge of activity concludes.

The earthquake restoration work, combined with nationwide leaky homes action and upgrades to seismic strengthening offer “the prospect of the largest construction-led boom” in New Zealand’s history.

“Do we currently have enough skilled people to do the work?” the report asks. “How do we ensure the greatest building boom ever is not followed by the greatest bust?”

Among proposed answers to that prospect are greater planning of capital spending by local and central government, encouragement for public-private partnerships to accelerate public infrastructure projects, tax changes to discourage property speculation, and adding employment targeting to the Reserve Bank’s sole focus on inflation.

The argument to curb residential housing boom-bust cycles is based on research showing this part of the construction sector is the “major driver of volatility.”

The report shows how the building industry boomed through early to mid-2000’s on the back of the residential property speculation boom, adding 60,000 jobs between 2000 and 2007, “almost 50% more than any other sector in New Zealand.”

In the recession that followed, the sector then experienced “by far the largest decline in employment since the peaks of the boom years.”

These trends, in turn, are encouraging low investment in relevant skills and allowing large numbers of construction sector workers to deal with downturns by simply leaving the country, possibly never to return.

This high volatility compared to other parts of the New Zealand economy was almost certainly contributing to the construction sector’s poor record of labour productivity, which is the subject of one of the first investigations by the newly formed Productivity Commission.

The sector was also the fourth lowest paid, which also reflected its tendency to pick up large numbers of relatively unskilled workers.

“Volatile cycles in the construction sector do not allow it to build and maintain capacity, or to plan more than a few years out because there is no certainty over any length of time,” the PwC report says.

Yet even a 1% improvement in the productivity of the sector would be worth $300 million a year to the New Zealand economy, PwC says.

While government spending could help smooth out cycles in the construction sector, its current contribution to construction spending was about a quarter of the annual total, meaning it could only partially offset big changes in private sector activity.

Better planning of capital and infrastructure spending, along with more use of PPP’s, would both be ways to increase the government’s capacity to dampen volatility in the sector.

The report also suggests that employment targeting, which is common in other countries’ monetary policy settings, could be added to the Reserve Bank’s single-minded focus on low inflation.

The New Zealand Institute, a think-tank, last month also called for the government to consider changes to monetary policy, including using quantitative easing – otherwise known as printing money – to help float the economy through recessions.

(BusinessDesk)

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4 Comments

This is so important. I recommend the academic papers and books of Alan W. Evans (and co-authors - University of Reading), and Paul Cheshire (and co authors - London School of Economics). British academics have 6 decades of highly volatile housing cycle data to go by, thanks to their 1947 "Town and Country Planning Act". THIS page is an excellent resource to locate those authors works:

http://www.performanceurbanplanning.org/academics.html

Rigid town planning, especially growth boundaries, causes cyclical volatility in the property market, housing unaffordability, reduced productivity, reduced international competitiveness, reduced social mobility, increased inequality, increased household and private debt, and reduced discretionary spending of all kinds.

The crucial point for the building industry, from the British experience, is that each housing cycle, while prices are more volatile, seems to have been accompanied by a lesser and lesser "building" response. The industry has become higher and higher risk, and comprised of fewer and fewer players employing fewer and fewer people. There has been a steady trend throughout, of an increased quantifiable shortage of housing, accompanied by unaffordability, overcrowding, health issues, and serious social justice issues.

The CAUSE of this is of course the ridiculous and unreasonable obstacles to development that are imposed by councils, with which we are now becoming increasingly frustrated in this country.

So yes, our building industry certainly SHOULD get interested in these broad picture issues - it is in the interest of the whole country as well as themselves.

Bernard is looking for plan B....fat chance Bernard...this is as good as it gets...we live inside a giant load of spin....and it is not going to change!

National has survived three years because the peasants could remember Clark's farce and having to hear endless shite from cunny and co, only served to remind them of why they don't want a bar of Labour. Seeing them so often didn't help either!

Look to see an immigration drive by the govt aimed at the wealthy. They will need to do this because Labour are planning the same game but are aiming at a different class of migrant to augment the socialists need for masses of misery. I expect it will be a 'build on the RWC' scheme....... fully supported by the builders crowd.

National will have just 30 months to pull it off.

The positive happens to be the extra 80 million hungry humans arriving every year and needing milk supplements and meat.! That's 200 million in 30 months.

Better get your Tamiflu supplies ready, Wolly. Here's a quick solution to global population, and immigration, problems. "Scientists solve puzzle of Black Death’s DNA"  .... that killed ... between 30 per cent and 50 per cent of the total population - in just five years" Convenient that the DNA secret has just been unlocked?! 

The report shows how the building industry boomed through early to mid-2000’s on the back of the residential property speculation boom, adding 60,000 jobs between 2000 and 2007, “almost 50% more than any other sector in New Zealand.”

Hellooooo

The Savings Working Group:

"There was a sharp spike in immigration in 2001, 2002 and 2003 and, said working group committee member Dr Andrew Coleman, it appeared that property prices did not fall anywhere near as greatly when immigration fell again.

The report added that there was little evidence that immigration boosted local incomes. In fact, the need to build roads and schools meant that net migration contributed to the national deficit."

http://www.stuff.co.nz/business/4622459/Government-policies-blamed-for-h...

I heard them on RadioNZ saying that (I think) $1 spent multiplies to $3, which is good but construction shouldn't be an end in itself and the government might use immigration (building) to make it appear that we have a healthy economy.