By the numbers: here’s how the construction sector is getting crunched

Monday, 12 August 2024

Sixty-seven percent of builders say there is less demand for their services than a year ago, according to a new EBOSS report.

The construction industry has been doing it tough this year, and builders do not think it is going to get any easier over the next year, new research shows.

Stats NZ figures show construction activity was down 4% in the first quarter of this year, and that new home consents were down 24% in the year to June.

The Post has previously reported that demand for architecture work is significantly down, and credit reporting bureau, Centrix, says there has been a sharp increase in construction company liquidations over the calendar year.

Now, there’s evidence the industry’s slowdown has hit the pipeline of work in two newly released reports, from EBOSS and BCI Central respectively.

Christopher Luxon announcement with Building & Construction Minister Chris Penk

Here’s what those reports’ numbers tell us about the current picture for the construction industry.

67%

That’s how many builders said they were seeing less demand for their services compared to the same time last year, according to the EBOSS builder sentiment report.

One quarter of the 659 builders surveyed reported a significant decline in demand, while only 12% said they had seen an increase in demand compared to last year.

EBOSS managing director Matthew Duder said rising interest rates, increased material costs, and broader economic conditions had led to a decrease in construction demand.

“That’s perpetuating a cycle that has already led to the closure of several building companies, with many others struggling to stay afloat.”

34%

The decline in demand was hitting planned work, with 34% of builders noting an increase in project cancellations.

Some 38% reported an increase in the number of projects being put on hold.

Building company workloads had decreased to 67% capacity, from 83% capacity at the peak in 2022.

EBOSS managing director Matthew Duder says smaller building businesses have been hit hardest.

And the number of businesses that were only working at 0% to 49% of capacity had more than quadrupled, to 21% from 5% in 2022.

57%

Smaller businesses had been hardest hit, with sole practitioners working at just 57% capacity on average.

Companies of two to five employees were working at 63% capacity on average.

Duder said smaller businesses typically focused on residential work, and that had seen an earlier downturn than the commercial market.

– 61%

But the downturn has also affected the future pipeline of work, with project leads and enquiries down 61% on last year.

The number of imminent ‘project starts’ was down 64% annually.

All regions and types of builders were experiencing a decrease in enquiries and new project starts compared to a year ago, but the decline was particularly pronounced in Auckland.

Over two thirds (70%) of builders surveyed believed industry conditions would continue to decline over the next year.

8.6

Builders now have much less forward work on their books, Duder says.

There was much less forward work on the books than builders had experienced over the past few years, Duder said.

On average the level of forward work was sitting at 8.6 months on average, compared to 11.2 months in 2022.

“Again, those numbers are looking worse for residential builders, with an average of just 6.8 months ahead compared to 10.8 months for commercial projects,” he said.

“Overall, just under a third of those surveyed said their business has just zero to three months of forward work left.”

Given those figures, and considering forward work for architects was also down, the trend was likely to persist for some time, the report noted.

70%

Most builders said it was harder to manage their business now than it was a year ago.

Seventy percent said it was more difficult to keep the pipeline full, while 67% said it was more challenging to maintain profit levels.

But staffing levels had improved, Duder said. Just 15% reported a shortage of skilled staff, compared with 33% at the peak of the post-Covid boom.

Construction labour shortages have eased, BCI Central’s Sarah Murphy says.

– 38.8%

The total value of early-stage construction projects around the country fell by 38.8% year-on-year and 27.1% quarter-on-quarter, according to the BCI Central Pipeline Report.

The Upper North Island continued to lead in project value, and contributed significantly despite the overall decline, it said.

BCI Central ANZ research manager Sarah Murphy said the construction sector continued to cool off from its post-Covid highs, with fewer early-stage projects in the pipeline.

“Although labour shortages have eased, supply chain issues, high interest rates, and inflation continue to pressure the industry.”

– 29%

There was a 29% annual decrease and a 13.5% quarterly drop in the value of residential sector work, the report showed.

But despite the decline in the sector and economic challenges, it remained a top contributor to total values, at about 68%.

There were some significant residential projects in the pipeline which highlighted ongoing high demand and sustained investment, Murphy said.

Those projects included the $150 million Summerset Mosgiel retirement village build, and a $100m Mount Albert apartment development.

“Opportunities remain as the Government and community housing providers advance public housing plans and urban developments,” she said.