Builders hope that clients won't desert them as they emerge from lockdown

Wednesday, 29 April 2020

Work resumes with new distancing rules at a construction site in Christchurch.

Building industry leaders say keeping people's confidence in construction will be key as builders return to work this week.

Builders packed up before Level 4 lockdown in March, not knowing if their order books would remain as they left them, or whether clients would pull out.

Building at Porirua's Kenepuru Landing resumes. The industry is waiting to see if the Government will lend it support.

Earlier this month Kapiti builder Mike Craig told Stuff that he had already lost jobs because people's finances had changed.

And the country's biggest house builder, GJ Gardner, says that more than 70 of its customers at the early design stage are reassessing their plans.

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Master Builders chief executive David Kelly says keeping present and future clients from losing confidence is the industry's biggest challenge.

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Construction is the country's third biggest contributor to the economy and Infometrics estimates there will be 29,000 construction job casualties as a result of a Covid-19 recession, including commercial building and infrastructure.

David Kelly, chief executive of Master Registered Builders Association, said getting confidence back in the market was a key issue.

'I think it's really the future pipeline. What I'm hearing so far is most people who've made a commitment who have started down the design track, as long as they've still got a job, most people are carrying on.

Fletcher Living chief executive Steve Evans says a crisis of confidence would be risky for the building industry.

'I think it will be the next wave, that's going to be the question.'

Steve Evans, the head of Fletcher Building's residential arm Fletcher Living, agreed 'consumer confidence is everything' as the industry sailed into unknown waters.

But 'I think it's inevitable that we will see a reduction in the volume of houses built next year'.

New home building is the biggest part of the construction industry, bigger than commercial and infrastructure combined.

'And I feel not just for the customers who might not get the house that he wants or she wants, but also the builder [whose] customer may decide to change his or her mind.'

Another area of concern was bank finance. While the Reserve Bank has relaxed loan-to-value ratios, which reduces the amount needed for a deposit, the banks did not have to follow suit.

'The fear from previous events is that banks have tightened up their lending rather than loosen their lending'.

Construction was driven by employment, migration and sentiment about house prices but the big difference with the Covid-19 downturn and other crises was that houses were still needed, Evans said.

AUT construction professor John Tookey says the quickest way the Government could save building jobs is by spending on deferred maintenance.

'The depth of under-supply is still there, and the market settings with regard to interest rates and the like are substantially better' than at other times of crisis.

Both Evans and Professor John Tookey, at AUT's built environment department, thought residential building could be involved in the list of 'shovel ready' projects the Government is drawing up to kickstart the economy and save jobs.

'The average house that we build probably has 20 smaller companies supporting us in those home builds so it's not a question of supporting the little guy rather than the big guy, it's actually supporting the industry,' Evans said.

Tookey said it was ironic that house prices was unlikely to go up even if there was carnage in the building sector, because of the housing shortage.

'It took us 10 year to scale up. If you pull the pin on supply, the upside is the house prices will be sustained.'

GJ Gardner managing director Grant Porteous and his wife and business partner, Ellie.

Infometrics was predicting unemployment for about 10 per cent of the workforce, but the job losses would be disproportionate.

'The thing to remember is that the construction industry is not one industry, it's three. You have commercial construction, which is offices and shops and so on. You have residential construction and you have horizontal or infrastructure construction.

'The biggest losses are going to be in vertical or commercial construction.'

If the Government was serious about supporting building jobs, the quickest way was through supporting deferred maintenance such as schools, Tookey said.

'There's literally tens of billions of dollars of deferred maintenance throughout the country that you could easily commit people to and would support the industry over the next six months to a year.'

Kelly said residential was 'the hardest part' of the construction sector to bolster, because it was not as conducive to big building programmes.

'Residential construction by dollar value is bigger than horizontal and commercial put together and the vast majority of it is from individual customers. So you can't just substitute a Government programme.'

'You can take the sharp edge off,' he said, but it really came back to bolstering the economy and confidence.

The Infrastructure Industry Reference Group is reviewing a large volume of applications for 'shovel-ready' projects, with priority projects to be announced in May.

Fletcher Living is thought to be the country's biggest spec builder, creating 1000 homes a year without a customer lined up

But the country's largest builder by volume is thought to be GJ Gardner, which builds over 1500 houses a year and employs 440 workers.

Grant Porteous, managing director of GJ Gardner's master franchise holder Deacon Holdings, said the company was in a secure financial position and only three builds had been put on pause.

Another 72 clients at the earlier design stage were also reassessing their financial situation.

'We are typically a cash flow positive business. We don't live on huge funding lines,' Porteous said. 'So we are not sitting here caught up with loads of land or spec homes we can't sell. Or have investors or bankers asking tough questions.'

Porteous expected the industry was in for pain. 'Our industry is driven by consumer confidence … Many builders will not be well prepared or have managed their finances well.

'I believe the Infometrics report showing our industry going from some 34,000 permits per annum (including apartments) to a 15,000 permit market is not overstating the decline.

'Good builders, with good systems, low risk models, good support infrastructure, a good history of success with their banks will navigate this challenge and get through.'

As lockdown fell, GJ Gardner had 915 homes at various stages of construction, as well as 580 homes which were ready to start and another 450 customers in the design stage, who had paid a deposit and were finalising their plans.