Westpac: Construction braced for huge job losses next year

Tuesday, 26 May 2020

Workers at Maritime Tower, Wellington's tallest new building currently under construction.

While building work is springing back to life, a construction downturn with huge job losses is due next year, according to Westpac.

Senior economist Satish Ranchhod said that with up to a quarter of a million people in construction related jobs, it was quite possible that up to 20,000 jobs were in danger, as projects in the early stages failed to go ahead.

The Government is urged by one union leader in the construction sector to 'crack on' with so-called 'shovel-ready' projects.

''The coming year will see large falls in privately funded residential and commercial construction, putting large numbers of jobs at risk.''

He predicted residential building work would fall 20 per cent below pre-Covid levels in the year ahead, as clients battled with ''job losses, stretched balance sheets, and nervousness about the economic backdrop''.

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Population growth would be also be a dampener, even though many parts of the country would still be wrestling with a shortage of houses for some time.

Westpac's Satish Ranchhod says a number of building projects are likely to fail, putting thousands out of work.

Commercial construction was set to fall by an estimated 15 per cent over 2021 and 2022, weighed down by weak tenant demand and investor nerves.

The Government's big spend-up in infrastructure construction would not offset the decline, but the situation would not be fully obvious until late next year, Ranchhod said.

'''That’s because of the large pipeline of work that was already planned prior to the outbreak of Covid-19 and a backlog of work that built up during the lockdown period,'' he said.

''However, the number of new construction projects coming to market or going through the consenting process will fall over the coming months.

''There is also likely to be a higher-than-usual number of planned projects that are cancelled.''

Westpac estimates the construction sector directly employs 258,000 people, and Ranchhod said unfortunately, it appeared the redundancies had only just started.

''We’ve already seen a number of job losses, and many other workers have had their hours reduced. There’s also a risk of job losses in related industries like architecture and professional services.''

After 2021, he expected a gradual pick up again, most rapidly for work on infrastructure and publicly owned buildings.

Infrastructure work would take longer to ramp up ''than the plans included in recent Budgets assume. That’s even with capacity being freed up in other parts of the construction sector.''

In residential, the weak economy would see new home sales stall, and developers would be reluctant to bring new residential projects to market until things improved.

Westpac is predicting a 7 per cent fall in house prices this year and ''for developers, that signals a squeeze on margins and the potential that capital could be left tied up in unsold homes''.

Scott McKenzie, chief executive of unlisted commercial property fund PMG, agreed some proposed office and other commercial buildings would not make it to the market.

''You need market confidence to be able to deliver those projects but liquidity – funding – is getting harder to access and that will slow down developments in the short-term to medium term at least.''

Westpac's gloomy assessment follows one by the BNZ, which forecast that house prices would dive up to 12 per cent in the next three years.