Layoffs, liquidations predicted as construction industry prepares for a 'tough year'

Friday, 24 March 2023

The construction industry has passed its boom.

Christchurch’s construction industry could be facing a tough year as the recent building boom becomes a thing of the past.

With the combination of higher construction prices, rising mortgage interest rates and a cooling housing market dampening demand for new homes, the industry is having to downsize.

Mike Blackburn, author of the Canterbury Construction Report, said the construction industry is in “a period of slowdown”.

So far this year, the city council has received 3.4% fewer residential building consent applications than it forecast, and 11.7% fewer than in the same period last year. As a result, it now expects to receive 15.6% fewer applications in the next six months than the same period last year.

* Frustrating delays for new homes as consents pile up

* Councils battling to recruit staff to offset 'unprecedented' building surge

* Is Christchurch the only New Zealand city with too many houses?

Peter de Gouw, director of Home Trends Builders, has had to lay off staff because work has slowed. (file photo)

Numbers in Selwyn and Waimakariri are also down.

Christchurch builder Peter de Gouw, of Home Trends Builders, said he laid off half of his 10 staff four weeks ago.

“There’s not nothing happening, but there’s very little happening. It seems to be very widespread. We’re pretty quiet.

“There’s plenty of people with money, but they are sitting on their hands waiting to see what happens with interest rates and whether there’ll be a change of government. There’s a strong feeling of lack of confidence.”

De Gouw described the shift as part of the normal construction “boom-bust cycle”. He said he expects things to pick up next year, but it was still hard for those who lost work.

Law firm director Brent Norling says about 70% of his firm's work now comes from the construction industry.

Blackburn said there had been a “massive increase in consents, mirrored across all of New Zealand,” between 2018 and 2022. In Christchurch, this had followed a slowdown as the earthquake rebuild tapered off.

He there had been indications of a slowdown over the last year, with consent numbers reflecting slower sales by builders and developers since the start of 2022.

“Industry-wide … most builders and developers will tell you that 2022 was a very, very hard year for them.”

He said there was typically a time lag as many homes are sold off the plans well before construction gets under way.

“What we’re seeing now is that most builders across Christchurch when they're finishing the work they've got on, have now got little to no forward work.

“Construction companies, builders and sub trades are going to find it very, very tough over the coming 12 months, there will be a massive increase in liquidations.”

Blackburn said there would be a big increase in layoffs, and the whole industry would find itself under enormous pressure.

“I predict we are set for a sustained period of downturn in building consents across the construction industry.”

A silver lining for builders is the slowdown will help consents come through more quickly.

Despite outsourcing consent approval work to consultants and other councils across the country, the Christchurch City Council has failed to meet legal deadlines for most consent applications during the construction boom.

The council’s head of building consenting, Robert Wright, said the drop-off has helped ease delays in processing building consents with processing improvements and “greater consultant capacity” also playing a part.

While councils are required by law to refund a proportion of consent fees when resource consent applications are delayed beyond statutory requirements, but there is no similar requirement under the Building Act.