Property editor of the NZ Herald

$18b construction industry calls for state help to smooth over volatility in sector

Government should plan the timing of its investment - report
A new report is out today on the construction sector.
A new report is out today on the construction sector.

The $18 billion construction sector wants Government help to smooth out volatile boom-bust cycles.

A PwC report out today, commissioned by two sector groups - the Construction Strategy Group and the Construction Industry Council - says state assistance would go a long way to helping this business sector flourish.

"A recurring theme from our interviews with industry participants was that the Government should take advantage of the current conditions and work more closely to smooth volatility in the cycle," the PwC report said.

"The same value of funds would be spent but the timing would be used as a tool to smooth volatility when private sector demand drops. There is the potential to avoid a bust if Government sector demand can counteract falling private sector demand," the report said.

"Counter-cyclical demand by the Government would reduce the volatility present within the sector and in effect reduce the magnitude of the bust.

Certainty of work and less fluctuation in work supports labour force planning as workers may be less likely to leave the sector if the volatility within the sector is managed better, improving sector performance and productivity," the report said.

The sector is dogged by a number of issues which result in low productivity and poor overall performance and the report says that without change, it will struggle to meet demand, citing the 422,000 new Auckland dwellings needed in the next 30 years.

PwC noted this was not the first time such issues emerged.

"In general the same structural issues that were identified in 2011 remain today," it said
Those include problems with labour, capital, operations, consumer choice and regulation.

However, Hugh Pavletich, co-author of the annual Demographia housing affordability study, said the PwC report was self-serving and unnecessary.

"It is far better to be keeping the focus on the major structural problems, being the abolition of urban limits and the proper debt financing of infrastructure, instead of wasting everyone's time with unnecessary and self-serving industry welfare ideas," Pavletich said.

But Shamubeel Eaqub, an independent economist and 2013 construction productivity report author when he was the NZIER's principal economist, backed the PwC report's call for more state help and said he had no problems with the sector calling for Government assistance.

"Of course it's lobbying but what's wrong with that? Isn't it what companies do? There's nothing wrong with the overall thesis of the report. We have very large swings in the construction cycle because the private sector is very sensitive to the economy, interest rates, etc.

"But the Government tends to be more stable and longer term in their thinking. It makes sense for the Government to be buying when the cycle is down," he said, particularly because the state would possibly drive a better financial deal in such times.

Of course it's lobbying but what's wrong with that?

He cited particularly state house construction but also acknowledge the state was a relatively minor construction sector client compared to the private sector.

The report said construction employs 178,000 full-time equivalent staff, contributes 8 per cent of the country's gross domestic product, was of a similar value as the wine industry and a driving force in New Zealand.

Nick Smith, Minister of Building and Housing, says New Zealand's building boom is continuing to gather momentum and he has particularly cited consent data for Auckland as evidence of that.

Statistics NZ said the annual value of building consents for new homes exceeded $10 billion for the first time in the 12 months to August 2016 when 29,627 new homes were consented. But the value of consents issued in the non-residential sector was $18.6 billion in the year to August, Stats NZ said.

Kirk Hope, BusinessNZ chief executive, backed the report saying his organisation had been working with the Ministry of Business, Innovation and Employment on formulating and improving state procurement practices.

"What's needed is more work to educate government procurement managers in the use of those principles, in taking a more sophisticated, supplier-friendly approach to procurement, and taking into account whole-of-life value and economic impact, not just cheapest up-front price," Hope said.

•consumer choices
[PwC report on construction sector]

Read the full report here

- NZ Herald

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