Construction firm surge still not enough

"Increases in house prices likely to support a pick-up in the construction industry", says ANZ chief economist Ivan Colhoun.

The construction industry has grown by 10,000 firms since 2002, a new Government report shows, but still lacks capacity to deal with the massive demand of the Christchurch rebuild and the Auckland housing boom.

The Construction Sector Report was released this afternoon, the fourth of seven reports designed to improve understanding of the economy.

Economic Development Minister Steven Joyce said that the construction sector now employed 7 per cent of the New Zealand workforce - around 170,000 people - and generated annual revenues of $30 billion.

He said that the industry was experiencing unprecedented growth, driven by the Christchurch rebuild and demand for housing in Auckland.

The report showed that despite the global financial crisis and an associated downturn in construction, the construction workforce grew by 30 per cent in the last decade.

It also identified challenges faced by the sector - low productivity, the aftermath of the leaky building fiasco, and the vulnerability of the industry to boom and bust cycles.

The construction industry questioned whether it had the capacity to deal with the massive workload of repairing leaky homes, rebuilding Christchurch and meeting housing demand in Auckland.

Many firms were small and might not be in a position to take advantage of these new opportunities. The sector was also concerned about the viability of firms once demand slowed again.

Productivity growth was lower than other parts of the economy. For every hour worked in construction, $34 of GDP was generated, compared to an average of $48 across all sectors.

Mr Joyce said poor productivity was already being addressed in the Government's Business Growth Agenda.

He pointed to new partnerships such as the accord signed between Government and the Auckland Council to build 39,000 affordable homes.

Low productivity growth was partly the result of a skills shortage. The cyclical nature of the industry had discouraged firms from taking on permanent workers and investing in their training.

As a result, many employees lacked basic numeracy and literacy skills.

The report said that skills and labour had been lost during the economic downturn and the sector's volatility had acted as a disincentive to firms investing in training.

It also noted that Government initiatives had led to an increase of 8000 apprentices in the trades area.