How level 4 lockdown could set our massive home building drive back

Friday, 10 September 2021

Building sites were left as they were after the country went into lockdown in August.

The country going into level 4 lockdown is a setback for our attempts to build new houses quickly.

The only “good” news is we are so far behind it probably won’t make much of a difference overall.

Infometrics economist Brad Olsen says even before the August lockdown, the time taken to build a house had been increasing.

Infometrics keeps a regular check on the time between a consent being granted and a house completed.

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Brad Olsen says the economic situation has been shifting rapidly because central bank strategy has too.

Now, builders around the country will be confronting the aftermath of dropping their tools and, in some cases, leaving building sites and frames exposed to the elements.

Winton chief executive Chris Meehan says his team had to remove the frames from dozens of houses after level 4 lockdown last year, because they had been exposed to the elements for too long. Even houses with roofs on can still have their framing get wet, requiring builders to sometimes leave a building site idle for several months to let it dry out.

Any ability to guard against this with a few hours’ notice of lockdown is limited. Builders don’t have large house-sized tarpaulins lying around on sites, roofing at short notice would be impractical too.

“The risk is if you have framing up, but no roof on, then your frames get wet, so they’ve got to dry up before they seal up again.

“If you get a combination of rain then sun, then rain, then sun, then they risk buckling.

“Either way, best case you’ve got to let it settle down and dry out for a month or two once the roof is on, worst case is you’ve got to take the frames out and replace them.”

Kerry Archer says the extent of delays to building work probably comes down to if a house had a roof on it or not.

Since Auckland went into lockdown a significant storm caused severe flooding in parts of West Auckland, with more than 150mm of rain bucketing down on August 30. Insurance assessors were looking into potential damage at 5500 homes and businesses in the storm’s wake.

Master Builders president Kerry Archer says builders are allowed on to sites at level 4 to secure them, and make sure that they’re safe, so the extent of the delays in restarting building work probably comes down to whether or not a house had a roof on it by the time the country went into lockdown.

“There’ll definitely be a lag time coming back from lockdowns.”

“We had a week of level 3 [in the South Island] where you can only have so many people on site, you can’t have as many people working, you can’t have subbies [subcontractors], and things like that on site.”

After the last lockdown Stats NZ reported most building projects experienced delays of between 20 to 60 working days, and a median delay of 33 working days. Using this as a base, Olsen estimates current lockdown conditions will likely delay homebuilding projects by a month.

AUT construction professor John Tookey says the new funding is a drop in the bucket of what is needed.

However, there is an additional complicating factor this time in the split alert levels and the potential of Auckland remaining at Level 4 for a lot longer.

As Meehan puts it, there is no back to normal for the building industry with Auckland still under lockdown.

“You can’t put the pipes in a row because we can’t get the pipes…you can’t get the consultants to come and check things if you’re near Auckland…[which means] you can’t get your work certified as you do it, so there’s no point doing it.”

The vast majority of the country’s building products, close to 90 per cent, are either imported from overseas or manufactured with the help of imported products. Most of that manufacturing and warehousing of imports takes place where those supplies are used: Auckland.

Before the lockdown there were shortages of things like timber products, bathroom fittings, exterior cladding and Hardie’s products, thanks to global supply chain disruptions. Now, there are shortages of everything else: Pink Batts, Gib board, colorsteel, plumbing fittings, plumbing pipe… a lot of these things are manufactured in Auckland.

The situation is so dire the Government has issued a health order allowing staff at certain building supply manufacturing sites to return to work in Auckland, even under level 4 conditions.

Some are predicting a mad scramble for building materials when the whole country is out of level 4.

When builders returned to their worksites around the country at level 3 they were forced to draw down on building supplies, but these were getting depleted, leading to shortages around the country.

AUT construction professor John Tookey says everybody who returns to work will have taken a differing hit to their productivity, which will create further delays down the line.

If a factory which manufactures one type of building product takes a 50 per cent cut to its productivity as a result of lockdown, and a factory producing another product takes a much larger hit, then it will be the delays suffered by the “lowest common denominator” factory that will dictate the pace of how quickly everything gets back to normal, since you need both products to finish a house.

The same applies to the construction of a house itself. If one subcontractor suffers a bigger productivity hit than the other, then it could hold up another subcontractor or builder relying on the completion of their work. Many of these lags will be unpredictable.

“Whoever is the one who is the least efficient at turning this around is going to be the one that is going to be the problem child,” Tookey says.

Olsen says if one building project is delayed then a group of builders and subcontractors may not be able to move to another one, pushing a whole range of timelines out.

The industry was already showing signs of reaching capacity. Consents are hitting record high levels, but building activity was showing signs of plateauing.

Tookey says these capacity constraints are what is causing ever-increasing delays to house-building. Some companies had taken on extra work but not put in place more resources to cope.

In other cases companies were having to rely on “second-rate” staff and subcontractors in order to complete the work.

“In order to deal with expansion, who do you take on? Anybody you can, [they aren’t] necessarily as productive as your best and brightest.

“As a result, as you expand, productivity has a tendency to decline because you need to have more supervision.”

An ominous sign if there proves to create even further backlogs of work too large.

Furious competition for resources is exactly what Meehan is predicting once the alert levels lift.

“There’ll be a mad scramble for all of the available ovens, and plumbing fittings, doorknobs, and whatever you can think of.

“Everyone will be scrambling for that. Some people will get it, some people will miss out, you just have to do your best.”

All of this could have an impact on margins, with added costs driving up the price of building a house. Tookey says houses built on fixed contracts are likely to have force majeure clauses, offering builders an opportunity to pass on these extra costs after something like a Level 4 lockdown.

Meehan says all of this means our housing crisis is getting worse as we try to stave off a health crisis. It’s part of his argument why the construction industry needs to prioritised to return to normal when conditions allow.

Olsen says the overall delays probably won’t matter much, because we’re so far behind anyway.

“This is absolutely a setback, but the limitations on building at the moment are not going to stop housing becoming all that more affordable.

“It will just mean that housing becomes more unaffordable over time, relative to how unaffordable it was already going to get.”