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With uncertainty around other investments, property remains a good long-term bet. Kiwis continue to invest in bricks and mortar for a reason – we can see it, we understand it, and its value holds up over time

Residential building critical for recovery – By David Kelly

The residential building sector is vital to New Zealand’s economic recovery. Master Builders (the Registered Master Builders Association of NZ) has recently conducted a survey of more than 100 of its members to better understand the pipeline of work and what has changed following the nationwide lockdown. In this article, chief executive David Kelly outlines the results.

Building and construction is a key driver of the New Zealand economy – last year we were New Zealand’s third-largest sector, directly contributing $19 billion to the country’s GDP. We also contribute to employment across the country, with 540,000 direct and indirect employees last year.

While it is the big commercial projects that often get the attention, it is actually residential that forms the backbone of the sector, accounting for 60% of its revenue, and employing 80% of apprentices. The true impacts of Covid-19 are still to be felt by the residential building sector.

While work has resumed after lockdown, this is mostly with projects that were already underway pre Covid-19. The pipeline of work after Christmas this year is the biggest concern for our builders.

Survey results

We recently conducted a survey with our members after the March/April lockdown. Nearly two-thirds (64%) of those surveyed say that their future pipeline of work has fallen by more than 10%, and for another third (32%) by more than 30%. The survey also found the two biggest issues facing the sector are consumer confidence (stated by 86% of our members) and client access to finance (66%). We are hearing from a number of people that it is harder to get the banks onboard without significant assets to leverage.

Confidence is also low – customers are simply hesitant to commit to some projects. Although consumer confidence is low, we believe this is actually a great time to build. For those in a position to do so, it’s a perfect time because of the low interest rates and availability of builders and tradespeople.

With uncertainty around other investments, property remains a good long-term bet. Kiwis continue to invest in bricks and mortar for a reason – we can see it, we understand it, and its value holds up over time. We have seen this in New Zealand after previous recessions. While there may be a little bit of softness in the immediate market, long-term property holds up as one of the best investment options.

We are also seeing a significant increase in renovation projects. For those who have cancelled their overseas holidays, investing that money in a new kitchen or extension is a really good option. This has been exacerbated with people spending more time in their homes. After a few weeks of lockdown, people knew what they wanted to improve in their house – and it is adding to their investment. While this is positive, there is still more work to be done to ensure the pipeline remains strong, particularly post-Christmas.

Stimulating the recovery

The NZ Government has shown support for our sector through the 2020 Wellbeing Budget. However, the main focus and funding is on infrastructure projects. Now we want to see further support for the residential sector. This will ensure we avoid the boom-and-bust cycles that have long plagued the sector.

We are looking across the ditch to what Australia is doing to stimulate their residential building. Master Builders Australia estimates that nearly 100,000 new builds will not go ahead this year after lockdown. Such a drastic drop will devastate the sector and put a handbrake on our ability to deliver when the economic recovery begins. This not only costs our sector, but the entire economy.

The Australian Federal Government is allocating AU$688 million to give AU$25,000 grants to eligible owner-occupiers (including first home buyers) to build a new home or substantially renovate an existing home. HomeBuilder will assist the residential construction market by encouraging new home builds and renovations to get underway. State governments in Western Australia and Tasmania are also offering their own incentives that build on those that HomeBuilder offers.

This is a proven investment. An Australian Treasury report shows that during the global financial crisis, the Rudd Government spent over AU$1.5 billion to support housing construction through similar time-limited grants to first home buyers. The Howard Government, during an economic slowdown in the early 2000s, also propped up the housing sector. Both were successful for the sector and the wider economy.

A positive outcome

We’re working with our members and other industry participants to investigate whether similar measures can work here. There’s no doubt that stimulating demand in new house construction would support businesses across the sector and reduce the risk of further unemployment. It would also assist in providing sector and public confidence in residential construction.

Building and construction will be a key player in New Zealand’s economic recovery. I am looking forward to continuing our discussions with our Government on how we can work together for a positive outcome.

David Kelly is the chief executive of Master Builders NZ and is also the chair of the NZ Construction Industry Council

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