At first glance, the construction industry here in Aotearoa New Zealand is confusing. On one hand, builders are operating at capacity with a 12-month backlog of work, seemingly indicating a sector on the rise, unconquerably ascendant. But on the other, news stories tell us that house prices are falling and the market is cooling off. Yet house prices are still 37 per cent higher than in 2019 and nearly 19 per cent above their level in 2020. W
This played out televisually at the climax of the most recent season of TV3’s The Block NZ. Typically four couples compete as they renovate four houses and sell them at auction, keeping any profits above the reserve price. This time the “winners,” Ben and Chloe, made a grand total of $4,000 on their property. The second-place couple only made $100. The final two were passed in making no money at all.
Compare this to last year, wherein the two winners, Tim and Arthur, walked away with a record profit of $760,000.
With such results, it’s easy to see why we might think that the housing sector is in crisis. Yet, at the same time, questions are also being asked about whether we might be building too many houses. The number of houses that we are currently behind nationally is estimated at 67,000. But in reality, many localities aren’t troubled by short supply. Development in these areas—like Drury or Pokeno, south of Auckland—would lead to empty houses and excess capacity. Auckland developer David Whitburn says that this will result in a flattening in the market, resulting in fewer of the smaller development companies getting pre-sales.
The outcome? Fewer new homes will be built, and we’ll be back where we started. Auckland’s CBD has been highlighted also. An abundance of apartments with high vacancy rates means there are too many houses.
How are we to make sense of this? Is there a shortage of houses, or too many? Is the construction industry contributing to the problem? What about bureaucracy? How might we fix it?
To get clarity and find out what’s really going on, I approached some industry insiders. Some built houses; some supplied them, and others were in the materials sector. They agreed to speak on the condition of anonymity. Here’s what they told me.
Manufacturing and Supply Issues
The most pressing problem they agreed on was huge supply issues for many of the materials needed to build a house. Gib, insulation, appliances, timber, and cladding are difficult to get hold of. The reason for this shortage, and the subsequent delays in supply, are the extended lockdowns in dealing with the COVID-19 pandemic. This is particularly true of Auckland, where the housing shortage is the most acute. While not all manufacturing occurs there, it’s a distribution hub for the rest of the country.
During the level 4 lockdowns, factories had to close, so the manufacturing and shipping of these various products fell to a standstill. Usually, there were stockpiles built up and maintained outside of Auckland, but as the lockdown dragged on, particularly the second one (???), they were wiped out. A backlog of demand was created. It currently stands at about 12 months. So material that was ordered last year is only showing up on construction sites today.
I was told that in some cases, the orders on the books would triple because of demand, and with no factories open, a large bottleneck ensued. To combat this and merely keep up with the orders coming in, some manufacturers and suppliers attempted to increase their output by increasing the speed of production. This, however, caused manufacturing faults and equipment malfunctions.
Add to this international shipping. You may remember seeing container ships in the harbour waiting for weeks at a time to be unloaded. There was, and still is, a shortage of truck drivers to help clear these. The cost of shipping a container has gone up significantly. Delays have been exacerbated by China’s ongoing zero-COVID policy and the Russian invasion of Ukraine. This means that it is difficult for construction companies even to get the supplies that they need from overseas to the job site. Prices have risen, but there is no guarantee that the goods will arrive when they are promised.
Compounding these issues, some of our local manufacturers moved their factories overseas. This would be fine if there were viable local competitors to fill the market and provide some relief when the product is waiting on a ship. But we have no alternatives.
Remember the Gib crisis? 95% of plasterboard used in construction is Gib. So when two of their factories shut down for maintenance over the summer of 2019/2020, and then they were shut down for Level 4 lockdown, it meant that the stockpiles dried up and houses sat unfinished with no viable alternative to line the walls and ceilings. No local plasterboard manufacturers existed to step in, and the above shipping issues hampered all other imports.
The amount of red tape needed to get consent and sign off on a new house is almost overwhelming. During the Gib shortage (which is still somewhat ongoing), if you wanted to swap out your Gib plasterboard for another imported brand, you have to go through a process which costs money and may take longer than the Gib does to arrive. You may also have to go back to your architect and get them to change the plans, which costs money. Gib is the default in many councils, and many construction companies receive generous rebates to ensure that all of their projects use Gib. It is challenging to be a newcomer and break into an industry when there are that many barriers.
Government has not always been a help either. For example when plans were laid out for Kiwibuild—to build 100,000 affordable homes in a decade— bids were taken for contracts taking companies through a long, drawn-out, and expensive process—sometimes costing a company between $50-100,000. This money was all spent up front, with no guarantee the bid would be successful. There were complaints that contracts were awarded on shifting criteria that were difficult to pin down. Insiders told me that often there was no give-and-take in the relationship. Stories abound of company representatives turning up for meetings with people in Wellington to discuss the situation and no one showing up to meet with them. Some of the small companies in this process went bankrupt.
Setting ourselves up for failure
These problematic relationships between the Government and construction companies are just a small part of the issue. Many of the insiders claim that all we are doing is setting ourselves up for long-term failure.
Compare the essential materials used today to those used during the state housing boom of the 30s. Timber is softer, and many of the other materials have traded quality for rapidity. Or the differences between the plans that architects draw and the builders on site doing the construction work. A difference of 5mm or more can have disastrous consequences, particularly in constructing dual-cladding systems. Often, these gaps are filled with a product with a far shorter durability rating than the rest of the cladding (two versus fifteen versus fifty years). Using mixed rating materials in our construction, we may be merely kicking the can down the road and saddling the next generation with the issue.