Construction slowdown: New build inquiries drop by up to 80 per cent, more companies could go bust alongside job losses

A building industry leader says inquiries for residential new builds have plummeted between 70 and 80 per cent - prompting fears of job losses and predictions some companies will struggle to survive the year.

Skyrocketing material costs, tougher bank lending, higher home-loan interest rates and soaring inflation, which has hit 7.3 per cent, are being blamed for the massive drop in inquiries.

Master Builders Association national vice-president Johnny Calley said the slowdown had the potential to "wreak havoc" on the economy.

Another building company boss based in Tauranga said sales were down to levels last seen in 2008 when the Global Financial Crisis hit and predicted "real hurt" for the sector when house and land packages sold last year were built.

The Government says it knows construction is "facing accelerating headwinds" and it is working with the sector.

Calley, of Tauranga-based Calley Homes, warned some residential construction companies that did not respond to the sudden decrease in demand may not survive.

Master Builders Association national vice-president Johnny Calley. Photo / Supplied

"We know from nationwide sales data across a lot of our members, that there's been a decline in interest and a decline in demand of between 70 and 80 per cent over the past six months. Those numbers are eye-watering."

Companies were trying to do business in a market where material price increases had jumped more than 20 per cent every quarter. There was also growing concern customers could pull out of contracts if they could not get finance, Calley said.

The reduced activity could also mean redundancies, which would not bode well for the economy or industry, Calley said.

"This is going to wreak havoc."

Stats NZ consent data shows in the year ended March, 50,858 new homes were consented nationally, up 24 per cent from March last year. Calley said in many cases, some of these were deferred.

He said the reduction in builder workloads was one silver lining for those who wanted to build in the future.

Classic Builders director Peter Cooney. Photo / Supplied

Classic Group director Peter Cooney said sales were down to levels last seen in 2008.

In his view, rising interest rates, and the uncertainty of where they would end up, were the biggest factors dissuading people from building a home.

The effect of the slowdown on the economy would be massive, he warned.

"Workloads are still strong from last year's sales but going forward in six months it will be a whole different ball game. There is going to be some real hurt coming in the construction industry."

It was the fourth property cycle Cooney had been through.

"This one has been a lot more sudden than we expected. I would anticipate that it will last until such time as interest rates begin to decline again which will be when inflation is under control."

Venture Developments director Mark Fraser-Jones also said new inquiries for houses were low and it would take a while to improve.

"Rising mortgage interest rates, rampant inflation that is the highest in a generation, generally low economic confidence and growing geopolitical instability. It's a cycle in the market, coming off over a decade of generally good times for the residential market."

"The biggest uncertainty will be how long the cycle takes to turn around. The biggest challenge will be how to bring new housing back to an affordable level."

New Zealand Certified Builders chief executive Malcolm Fleming said general feedback from its members indicated they had 12 to 24 months of work lined up.

However, inquiries had slowed and the market conditions next year would be different from the past two years when demand outstripped supply.

"Going forward you would expect consumers to have more choice when it comes to builders. So those who are aligned to an association or are certified will fare better than those who aren't."

CoreLogic chief property economist Kelvin Davidson said it was concerning to hear new build inquiries had dropped so dramatically.

"Anecdotes like that usually turn into data as they are seeing that on the ground. It's real."

Davidson said CoreLogic was aware the demand for property was down across the whole property sector.

"People have been cut out by higher interest rates and reduced mortgage availability. Some people are also pulling back out of choice. They are going 'if it is going to cost me less in the future, I'll wait'."

The effect on the economy could mean a higher unemployment rate, he said, but other industries like agriculture, horticulture and, to an extent, tourism were on a more positive footing.

Roger Beaumont, chief executive of the New Zealand Bankers Association. Photo / Dean Purcell

New Zealand Bankers' Association chief executive Roger Beaumont said rising interest rates, albeit from historic lows, had a real impact on a borrower's ability to afford repayments on a home loan.

Another big factor was the consumer lending rule changes the Government brought in last December.

Recent tweaks to the rules would not make a difference for most borrowers because most of the existing requirements remained the same, Beaumont said.

"Customers still need to provide detailed information about their spending. That results in a painstaking process and more loan applications being declined than before the December rule change.

"While we agree with the government's aim to protect vulnerable consumers from unscrupulous lenders, the one-size-fits-all approach for all lenders and all loan types means banks don't have the same discretion or flexibility they used to."

Megan Woods, Minister for Housing as well as Building and Construction, said the Government knew the construction sector was "facing accelerating headwinds that impact on its ability to continue to build houses and infrastructure at the pace and scale that is required to support new housing".

"We have been engaging with the sector on this issue through forums such as the Construction Sector Accord, which has played a vital role in maintaining a viable construction sector over the past year."

She said yesterday she met Master Builders and "discussed what moves the Government can make to alleviate this counter-cyclical situation".

The Government was also looking at ways to avoid putting additional stress on the sector, and has extended the timeframe for new insulation requirements to May 1, next year.

Woods said it was also important to have a pipeline of public construction and infrastructure programmes such as building 18,000 public and transitional houses by 2024, and the $3.8 billion Housing Acceleration Fund for housing-enabling infrastructure.

The Government was committed to "long-term transformation of the construction sector" and had put $37m towards a plan to address pressing needs such as workforce skills and diversity.

A Ministry of Business, Innovation and Employment spokeswoman the tenth National Construction Pipeline Report annual report, which provides a projection of national building and construction activity for the next six years, would be published shortly.