Weighed down by a tight labour market, cost increases and inflationary pressures, construction and infrastructure companies are facing their most intense period — and this intensity is likely to persist for a longer period.
Brad
Weighed down by a tight labour market, cost increases and inflationary pressures, construction and infrastructure companies are facing their most intense period — and this intensity is likely to persist for a longer period.
Brad Olsen, principal economist and director at Infometrics consultancy, outlined his views on the infrastructure sector's challenges arising from skill shortages and supply chain issues at the recent Building Nations 2021 symposium.
"New Zealand and parts of the world are now in their highest inflationary environment for more than a decade. Finding the right workers to do the jobs is incredibly difficult and we see challenging times ahead, not only to get work done but also to make it come in on budget."
Olsen told the symposium, organised by Infrastructure NZ, that "The labour market is by New Zealand standards the tightest market we have had."
The unemployment rate of 3.4 per cent on a seasonally adjusted basis for the September quarter was the lowest since the 1980s. Olsen said there's no real slack in the labour market. The construction and infrastructure sector has a large amount of work to do, but getting it done may actually take longer because of the labour supply.
"The challenge is finding the right people in the right places to do the right jobs. Another challenge emerging is that competition continues to heat up in the labour market, not just between different construction firms but also across the wider economy."
Over the past year, the health sector has added more than 17,000 jobs; construction nearly 14,000; professional, scientific and technology 11,000; manufacturing nearly 8000; and agriculture, forestry and fishing is the only sector that has had a decline. Provincial regions such as Northland, West Coast, Bay of Plenty, Hawke's Bay, Waikato and Southland have been filling jobs faster than the main centres of Auckland, Wellington and Christchurch.
Olsen said people have a huge amount of choice about where they want to work, and businesses are finding it incredibly difficult to hire the right staff. Provincial North Island, for instance, has had a strong bounce-back. Taking the total amount of cash businesses are paying staff divided by the number of jobs they have on their books, earnings per filled job have increased more than 6 per cent in recent times.
"We know job ads are high but the number of people looking at the ads is lower. Businesses are reporting this is the most difficult period on record to find workers since the 1970s. And we are also seeing the highest levels of labour turnover, poaching if you will, since the 1970s. That means businesses are not only paying more to attract new staff but also paying a lot more just to keep current people in the organisation."
Olsen said there has been a huge drop in migration. "Even though we expect a revival in migration activity, it will be nowhere near what we saw pre-pandemic. There is a risk that New Zealand is being seen as hard to get into but easier to get away from, keeping net migration levels soft."
Net migration over the past 12 months was 800 people. "That's three digits, not the usual five. We have no-one coming in who is available to work, and the population growth for the working age of 15 to 64 is barely existent."
But here's an irony. There are 190,000 people on a Jobseeker benefit — nearly 50,000 more than pre-pandemic. "It's not that we don't have enough people; it's just that they don't have the right skills," said Olsen. "There will be continued work to bring these people into action."
He said there was a healthy pipeline of activity for residential and commercial building but the sector was also hampered by a scarcity of materials. Residential costs had increased 9 per cent over the last six months, and civil construction costs were forecast to increase 2-4 per cent over the next five years, after coming off a very high peak of 5 per cent at the end of this year.
"There is no real end to the pricing pressures that are intense across the economy, and when inflation catches up the challenge will be to not only get the work done but do it to the right standard at the right cost and at the right time."
Container costs increased 10 times during the pandemic and have levelled off in the last two to three months. "But it's very hard to believe freight costs will drop back to normal any time soon — in fact we see another 18-24 months before things really start to turnaround.
"Businesses have to order considerably more and further ahead to make sure they have the goods available. We are not seeing a huge amount of stockpiling which might surprise some people. They are buying a higher level of stock so they are ready to go on a specific project, and when it does arrive hopefully the project can get under way.
"Thankfully, sea imports are getting back towards normal but the goods arriving were wanted six months ago. The flow-on effect of pushing out timeframes on building projects is likely to continue, and many more businesses will be renegotiating exactly what they are getting, at what price and at what time."
The index finished the week down nearly 2.8% and is now 6.2% ahead for the year.