Impacts of Psa and Rena take their toll

The recession is officially over, but how tough are things in the Western Bay? Business editor Graham Skellern takes a look at the local economy in the first of a series. Today, he examines economic activity in the Bay with a focus on the building trade, and speaks to businesses on Newton St to see how they are faring.

Economic activity in the Bay has taken a hit over the past six months and the blame has been placed squarely on the impact of the Psa kiwifruit disease and the grounded Rena container vessel.

New dwelling consents locally also continue to run at half the level they should be to inject life back into the building and property market, which is entering its fifth year of a downturn.

The latest National Bank and ASB/Main regional economic reports show that the Bay has dramatically fallen from being one of the best performing areas in the country to one of the worst.

The ASB/Main rankings put the Bay at the bottom, alongside Northland, Hawke's Bay and West Coast for the three months ending December.

Among the 16 regions, the Bay has fallen from a lofty second place in the June quarter to middle of the rankings for the September quarter.

For the December quarter, employment in the Bay fell 3 per cent to 118,000 (out of a population of 277,000), retail trade was up 9 per cent to $911 million, house prices slipped 0.6 per cent to $348,000, the value of construction decreased 26 per cent to $113 million, and new car sales were steady at 1649.

The ASB/Main report said the slide likely reflected the effects of the Psa outbreak on the kiwifruit producing region, and the fall-out from the Rena shipwreck on its tourism industry.

Employment and housing market activity declined over the past year in contrast to the recovery generally taking place nationwide.

These developments look to be weighing on the region's household sector, and consumer confidence in the Bay now lags most other regions in New Zealand, the report said.

National Bank's regional trends survey showed the Bay's economic activity slipped 1.9 per cent during the December quarter, placing it second-to-last of 14 regions and just ahead of West Coast, which fell 2.3 per cent.

The Bay's year-on-year growth was zero, along with Waikato, making them seventh equal.

But the Western Bay of Plenty economic monitor, commissioned by Priority One, said the growth rate for the year ending November was 2.1 per cent taking into account retail sales, building consents, car registrations and residential property sales.

The economic monitor estimated retail sales reached $447.8 million in the Bay during December - the highest recorded over the past two years. The annual average growth rate was 4 per cent.

The number of car registrations in the Western Bay fell from 536 in November to 471.

According to Tauranga City Council figures, the number of new dwelling permits issued last year reached 545 compared with 492 in 2010 - well below the peak years between 2003 and 2006.

A total of 1443 permits were issued 2003, 1597 in 2004, 1267 in 2005, and 1146 in 2006.

In January 47 permits were issued, up six from the same month last year.

Mohan De Mel, the council's treasurer, said: "We are still getting 40-45 permits a month and we need to do better ... 70-80 a month. At least last year was better than 2010."

He said one good sign was the increased activity in the commercial property sector, with new buildings going up in Cameron Rd and Devonport Rd. Ryman Healthcare's Bob Owens Retirement Village was pushing ahead, and the hospital was always doing some work.

Tauranga's two biggest group builders are expecting to build more new houses this year, but they are being cautious.

David Mansel, a director of Generation Homes, said there was a definite lift last month.

"We were still quiet up to the end of last year and then we had a big increase in inquiry from people who are cashed up.

"The real estate scene has been busy, rental agencies are short of properties, interest rates are low and first-time home buyers can pull their KiwiSaver money for a new house.

"The inquiry will definitely flow into sales but they haven't hit the building consents yet," Mr Mansel said.

He said building and property was the biggest industry in the region - "but you've got to give the port and related businesses kudos" - and everything looked rosy this time last year.

"Then it turned to custard ... the Christchurch earthquake, Japanese tsunami, Rena on the rocks, Psa looking bad. I think the Rena wreck has now gone out of the news. It's more positive and people are starting to move forward," said Mr Mansel.

He has set a conservative budget of building 36 new houses in Tauranga this year, compared with 30 last year. Generation Homes used to do 80 homes a year here in better markets.

Classic Builders got through 61 new houses in the Western Bay region last year (its peak was 115), and its owner Peter Cooney said Tauranga was still looking pretty sick. "The land is too dear and the demand is not there."

He said Tauranga was still a desirable place to live but not many jobs were advertised, and other places were more affordable.

"When Auckland grew, we grew ... That was the case in the 1980-90s but the Aucklanders can now spread to Orewa, Matakana, Omaha and even Matamata."

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Newton St has long been the heartbeat of the Mount Maunganui, and even Tauranga, industrial and commercial scene.

It has an eclectic mix of businesses involved with retail, wholesale, manufacturing and exporting. Two gyms and a childcare centre join the lineup.

Above all, Newton St has been known as the destination for home builders and renovators. They can drive or walk up and down the street and in one fell swoop stock up on their new kitchen, bathroom, laundry, lighting, carpet, vinyl, tiles, paint, cupboards and some furniture.

Newton St, the only thoroughfare through the Mount industrial area from Hewletts Rd to Hull Rd, developed its own vibrancy with hard-working and dedicated family businesses operating alongside the slicker national chains. But has this lustre been lost?

These businesses, dealing with the public and different trades, are related to the building industry which, in Tauranga, has been one of the most affected sectors since the onset of the recession in late 2007.

The past four years have been difficult and trying for the Newton St businesses, like others in the city.

Most of them have survived but some in Newton St have come and gone.

Turnover fell as consumers reduced their spending, and the businesses have had to reduce their costs, improve their service, and find effective ways of promoting themselves.

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Technically, New Zealand is out of the recession, having had economic growth, albeit small, for four successive quarters to the end of last September.

A bustling building and property market - such as the one seen in the mid-2000s - underpins the local economy. The residential side is still refusing to fire up, unlike other regions in the country - and the business owners along Newton St continue to face an uncertain future.

Interestingly, those owners judge the business activity in their neighbourhood by the amount of traffic moving up and down the street. After the Rugby World Cup and in the run-up to Christmas, sales slowed and some owners reckoned they could drive out into the street, colloquially speaking, without looking.

Trading improved in January and February - they had to be more cautious crossing into Newton St - but the activity can differ day to day. In the boom times, they had long waits to leave their driveways and join the constant flow of traffic.

"Business is pretty lumpy," said Russell Reardon, owner of Mr Shelf Kitchens & Cupboards, which has operated in Newton St for 20 years.

Dianne Sligo, who has run Carpet Barn with her husband Graham for 10 years, said: "We had a good start to the year and then in the last week it tailed off again, with less foot and phone traffic. It's just so hard to predict."

Mohan De Mel, Tauranga City Council treasurer, believes the local economy will remain flat for the rest of the year.

"I can't see any real change. The negative impact of the Psa kiwifruit disease will flow through the community, that's the biggest problem," he said.

Mrs Sligo said: "We normally get a good little patch before the kiwifruit season cranks up, but with all the uncertainty in that industry we haven't had the same inquiry this year".

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Over the past few years, the number of (custom-made) kitchen companies in Newton St has reduced from six to two.

Kitchen Studio moved to Cameron Rd, Euro-style Kitchens and Revive Kitchen closed down and PlaceMakers Kitchens consolidated back to its main site in MacDonald St.

At one stage, More Than Kitchens, which has now been trading for 20 years, had four competitors within 100m of its present showhome.

Mico Bathrooms took over Zip Plumbing Plus and Corys plumbing business, while Corys Electrical, rebranded from MasterTrade, now concentrates on all electrical products.

More "for lease" signs than normal are on display in Newton St. PlaceMakers Manufacturing expanded next door and then moved back, leaving a large industrial building untenanted for 18 months.

Tauranga Landscape Centre closed two months ago, and this week the street's City Auto Spares packed up to move to a cheaper rental in Judea.

Close by, The Wooden Toy Box, producing quality wooden toys at discounted prices, had vacated its premises and is opening a new retail shop elsewhere in Tauranga and a factory outlet in Papamoa this month.

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A recession brings rationalisation or a clean-out. The ones with the greatest skills and service survive.

Newton St has two "old timers" who continue to ply their trade successfully.

Mount Joinery, just up from Hewletts Rd, started 33 years ago when the road outside was gravel and the neighbours were cattle on the Soper Farm, now remembered by the Soper Reserve alongside the Brewers Bar.

"We used to throw the scraps to the cattle. In those days, it was only us and a boatbuilder next door at this end of the street," said Mount Joinery owner Campbell Aitken, 66 next week and about to hand over to his son, Jonathan.

"We have survived because we have been here quite a while," he said.

"We do anything that comes in the door - staircases, shopfitting, kitchens - and I guess that's made a difference. If you are prepared to bend a bit, then you can keep your head above water.

"The building industry has been like a rollercoaster ride over the last few years, and the downturn has stretched longer than I thought. Every now and then you get a rush and then it goes quiet for a period."

Mr Aitken cut his cloth by dropping his firm's hours 18 months ago, from 60 hours a week to 40 hours. But he's kept five qualified staff on for five years now.

"We have people coming in every day looking for a job, and we've managed to retain loyal staff. One's worked here for 22 years," he said.

Don Cauldwell, who has operated in Newton St for 15 years, has seen upholsterers and motor trimmers come and go; others have specialised.

Like Mr Aitken, Mr Cauldwell - who runs Universal Motor Trimming and Upholstery - will do any job, from car and truck seats and soundproofing heavy machinery to boat canopies and frames, and aircraft interiors.

"I've never run out of work and it's got busier. I'm working 12 to 14 hours a day, except Sundays, and it's brilliant," he said.

Jason Enright, managing director of More Than Kitchens and Pedlars Building Recyclers, is sensing a more positive year.

"We had a great January, and February was up on last year. It was like the light was turned on after Christmas and people wanted to do things," he said.

"Mums and dads are renovating their homes. I don't see any significant change in new housing over the next six months - that's still very tentative. But the home renovation market is moving and it tells me people are feeling more confident."

Mr Enright is selling some products at the same prices as 10 years ago - to compete against the likes of Bunnings Warehouse - and he has to run a tight ship. Over the past four years he has decreased his staff by two, and now employs six people.

"We've had some redundancies and that's the worst thing a business owner has to do. But we are still here and we are seeing some upside," he said.

"As soon as the Christchurch rebuild gets going things will go 'woosh'. The building sector will grow.

"Tradesmen who go and work there will send their income back to families in Tauranga, and the money will flow through the community," Mr Enright said.

Russell Reardon, of Mr Shelf, said the fear of the unknown was making people cautious - from the Euro crisis to Psa.

"They hear all this bad news but then get to the point of realising the world hasn't collapsed, and they really do need to do their kitchen up or buy a unit and a sofa. It largely comes down to confidence."

Mr Shelf, which supplies the Mitre 10 chain, cut its staff to 16 during 2008 but has built it back up to 25.

"You always have to plan for growth," said Mr Reardon.

Building new houses would trigger the market. A project such as Bob Clarkson's 1000 affordable homes could reinvigorate the whole community.

"It would create an activity bubble - it's as simple as that."

South African-born Albert Louw bought the Plumb'In franchise in Newton St seven months ago and wondered what he had struck. In his first month, sales dropped 40 per cent compared with the previous four weeks, but Mr Louw increased his advertising and sales steadily increased, with a busy past two months.

The franchise has planned for 15-20 per cent sales growth this year. Mr Louw said the period from the Rugby World Cup to Christmas was the quietest - "People were not looking and there wasn't even foot traffic. We had quotes from Te Puke but they didn't come through because of the connection to the kiwifruit industry.

"But February has been the best month since we started. People are coming through the store and they've come from Rotorua, Whakatane, Waihi and Katikati.

"It's feeling more positive," said Mr Louw.

Michael Stobie has operated European Ceramic Tiles & Carpet for 16 years and the past three have been tough, with turnover dropping by about 60 per cent.

He's reduced his staff from 11 to seven and cut costs including decreasing his warehouse space by half and saving on rent.

"You've got to keep going that extra mile," he said.

"When times are tough, the quality of service is paramount and you've got to make the most of the opportunities rather than pick and choose.

"People are coming in off the street and things are picking up. More people are spending smaller amounts to do minor alterations - they won't wait any longer."

Alongside other established retailers and wholesalers on Newton St, Mr Stobie is determined to hang in.

"It's a destination, you can get all your [home] requirements along the street."

And when the good times inevitably roll around, these more efficient businesses will be well placed to take advantage. The lustre will back on Newton St.