Building consents reach another record high, but what harsh realities lie behind the construction market's ‘illusory boom’?

In the 12 months to the end of March, a record 50,858 new homes were consented, up 24% on the same period last year and also a new annual high. Another significant change was that, in the year to March, consents were issued for 25,475 multi-unit homes, including townhouses, apartments, units and retirement village units. This exceeded the 25,383 standalone houses approved over the same period and also set an annual record.

Despite such strong enthusiasm for new residential development, YIJU believes we need to recognise that, with construction costs continuing to rise, more building consent applications are unlikely to ultimately become completed homes for sale. Some might counter: “Aren't we New Zealanders experts at DIY homebuilding?” That may be true, but the current reality is that builders are hard to find. Experts warn that rising construction costs, supply chain delays and a surge in projects are putting pressure on the industry and extending development timelines. This is having an unprecedented impact on homeowners/investors hoping to hire builders in the coming months.

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The illusion of a construction boom

CoreLogic head of research Nick Goodall says the backlog of consented projects is growing. In the 12 months to the end of March, new home building consents rose to more than 50,000, far exceeding the New Zealand construction industry's maximum capacity of 30,000 to 35,000 homes a year. New government property rules have continued to encourage new home construction. For example, first-home buyers can benefit from lower loan-to-value ratio requirements and KiwiSaver incentives, while investors can apply for tax concessions through new builds.

Goodall believes there will be plenty of business opportunities in construction over the next two years for builders who are willing and able. He said:

“A strong property development pipeline needs to be established. But with labour and material costs constraining the market, there are serious questions about whether the construction industry has sufficient capacity.”

New Zealand's construction market faces particular shortages of tradespeople, including essential trades such as plumbing and electrical work. And that is just in the new-build market. New Zealanders wanting to renovate existing homes may face even longer waits. Builderscrack marketing manager Jeremy Gray believes building material supply shortages may have less impact on smaller projects. This is because many complex renovations and new builds are organised around material availability. Those projects may be delayed by supply problems, but builders can still complete smaller jobs on other projects.

Will construction businesses survive or fold?

New Zealand Certified Builders chief executive Malcolm Fleming says the construction industry faces potential headwinds. Rising borrowing rates and inflation are reducing people's ability to borrow and invest in developments. Fleming says falling demand could ease pressure on building material supplies. This should make it easier for good builders to secure business opportunities. However, if construction companies fail, investors will face the challenge of finding another builder. He “certainly hopes” that pressure from supply chain constraints, workforce shortages and falling demand will not force builders out of business. Kiwibank chief economist Jared Kerr, however, appears to hold a different view.

Jared Kerr believes more builders could fail this year during this difficult and uncertain period. We have already heard many stories of builders struggling with construction costs and labour shortages. Even so, he believes thousands of homes will still need to be built over the coming years to address the housing shortfall. There should therefore be plenty of development work getting under way across the industry. Even if large builders are tied up with major housing developments, smaller builders should still have opportunities. Meanwhile, Kerr also expects that, as the housing market slows as it is now and demand falls, people will be less inclined or enthusiastic about investing in renovations and new builds.

Which construction trades face the greatest shortages?

Homeowners and investors typically post their requirements on Builderscrack when they need to hire tradespeople, and suitable builders contact them with quotes. Over the past few months, the balance of supply and demand for these smaller building jobs has changed significantly. Jeremy Gray says that before Covid, typically less than 8.5% of requests were posted on Builderscrack, but since the start of this year, demand for tradespeople has peaked and that proportion has jumped to 15%. He predicts hiring pressure will ease over the coming months, but expects demand to remain for a long time, with the market adjusting in response to demand for tradespeople.

Builderscrack's monitoring in April this year found that gasfitters topped the list of trades in shortest supply, followed by flooring installers, cladding installers, roofers and bricklayers. Electricians faced the lowest demand, followed by painters and decorators, plasterers, excavation workers and drainlayers.