Building sector loses steam before lockdown

Monday, 8 June 2020

Construction on a Nelson retirement village. Many building firms have voiced concern about delays in the current climate.

The construction sector is showing the first signs of a crash, according to economic research house Infometrics.

Statistics NZ has recorded a sharp fall-off in building volumes in the March quarter, with overall building activity dropping 5.7 per cent compared to the December quarter.

Residential building down 5.8 per cent and non-residential slid 5.6 per cent.

Activity was already falling before the coronavirus, with a 0.9 per cent decline in December, but it was largely dragged down by non-residential work, with residential still positive until the latest quarter.

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Infometrics economist Andrew Beattie said the lockdown had abruptly cut short the construction cycle's peak, but weakening confidence in construction firms had already been starting to show its hand.

Annually, building volumes were down 8.2 per cent, the largest decline in activity since 2011's Christchurch earthquakes.

And worse was to come, with the June quarter covering a whole month where there was virtually no construction due to the lockdown.

Despite that both residential and non-residential activity held up slightly better than Beattie had expected.

Construction Minister Jenny Salesa at launch of the Construction Sector Accord at a Manurewa building site on Sunday.

''Many consents were still processed during the lockdown (particularly residential consents), but we expect less translation into actual builds as nerves remain about the property market and prospects for the economy, with non-residential activity likely to be most affected by projects not going ahead.''

Auckland and Wellington had seen the biggest annual falls in residential work, down 6 per cent and 5 per cent respectively.

Statistics NZ's acting building statistics manager Dave Adair said the latest figures had partly reflected lockdown, which shaved at least four working days off the end of March.

But he said the building sector was also flattening out after running at historically high levels for about four years.

There had been several years of growth initially driven by the Canterbury earthquake rebuild, then by developments in Auckland.

Statistics NZ also collected responses from more than 1100 building firms, which ranked delays as the most likely factor to influence their projects.

A fifth said financial problems were also of concern, while 5 per cent cited limited availability of building supplies.

Less than five per cent were worried about reduced productivity, limited availability of workers, or reduced market confidence.

“In the end, many respondents are unsure as to how successful their building projects will be since it all depends on the currently unknown future health of supply chains, the labour force, and various market,'' Adair said.

ASB senior economist Jane Turner said the March decline was greater than most people expected, and she was forecasting a 35 per cent quarter on quarter fall in June.

Calls are growing for the Government to support residential construction.

Housing demand had picked up and construction demand was still strong. But ''we had expected there would be a bit more underlying momentum in construction activity in the quarter prior to the Covid-19 pandemic reaching New Zealand.''

The next building activity figures are due in September.