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Construction works are forecast to recede to levels similar to those of the Global Financial Crisis due to the impact of Covid-19, but there are doubts in the sector that they will get that bad.
The 2020 National Construction Pipelines Report has been released and forecasts a billions of dollars drop in construction work over the next two years due to the impact of the pandemic, including a more than 40 percent drop in permits. of housing.
It was commissioned by the Ministry of Employment and Business Innovation (MBIE) and jointly prepared by BRANZ (New Zealand Building Research Association) and Pacifecon NZ.
This has prompted the country’s builders to ask the government to partially underwrite the housing development to help lessen the impact of an anticipated drop.
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Master Builders Registered CEO David Kelly says the government should have a ready answer for the recession, including partial underwriting from home developers.
Master Builders CEO David Kelly said the pipeline report showed the total value of construction decreased by 31 percent by 2023. The worst hit was residential construction, which fell 43 percent.
“Our members are surprised by the magnitude of the anticipated drop, in fact many of them have full order books for next year and through 2022.”
The industry was questioning some assumptions behind the report.
“But what this shows is that the residential sector is prone to crashes. And when they do come, they can be quick and severe, and have a drastic impact on the economy, ”Kelly said.
During the GFC, between 2008 and 2011, homebuilding fell by 50 percent and the residential construction sector lost a quarter of its workforce.
It took seven years for the industry’s employee levels to recover to pre-GFC levels. That directly contributed to the housing deficit that New Zealand was still trying to rectify, Kelly said.
The government needed to have a political response to the recession. The Ministry of Housing and Urban Development was already considering underwriting partial financing, as well as incentives, Kelly said.
Partial underwriting could be that the government agrees to buy a certain number of sections from developers so that banks will continue to lend to them and can continue developments even in the recession, Kelly said.
“So it just mitigates those really serious impacts.”
The government could stimulate the industry by giving grants for a certain period of time to people who want to build a new house. That was done in Australia and the United States after the GFC, and the data showed they were instrumental in reversing the housing decline in their countries, Kelly said.
The report predicts billions of dollars less in work in the construction industry, reducing it to similar levels during the Global Financial Crisis.
New Zealand’s total construction value increased by 7.5 percent in 2019 to $ 43.2 billion, according to the 2020 pipeline report.
“This year’s forecast is for a sharp drop in the value of construction to $ 29.7 billion in 2023. This reduction would reduce the value of construction to levels similar to the GFC,” he said.
The sector was expected to rebound after that.
In August, Housing Minister Megan Woods announced $ 350 million to support the housing and construction sector and boost developments that had stalled or were at risk of not being completed.
Andy Jackson / Stuff
The 2020 pipeline report forecasts that housing permits will fall to 22,000 in 2022 from more than 37,000 in 2019.
Construction Industry Council Chairman Graham Burke said a survey conducted last week among members yielded a different result from the 2020 pipeline report forecasts.
Demand was good in construction and especially in residential building that was “going crazy.” There were some issues related to the supply of materials, but they did not have an impact as far as the report forecasts.
Previous forecasts had the construction industry against the wall in the December quarter of 2020, but the actual result was the opposite. But the industry has always been plagued with ups and downs, Burke said.
He had heard that the government was going to make a housing policy announcement in the new year.
“If everyone talks pessimism, it will happen.” Consumer confidence was important for home construction to remain stable.
MBIE said that compared to 2019, Auckland was expected to have a 16 percent decline by the end of 2025, while Waikato / Bay of Plenty was forecast to decline by 18 percent.
The decline was expected to be worst in Wellington, 35 percent, and Canterbury, 57 percent, Otago 33 percent, and the rest of New Zealand at 29 percent.
Non-residential construction activity that included hotels, offices, retail stores, and industrial buildings was forecast to fall 42% nationally from $ 10 billion in 2019 to $ 5.8 billion in 2022 before recovering to $ 7, 4 billion in 2025.
Fewer multi-unit homes would be licensed, MBIE said. They would be the most affected by the pandemic, especially the apartments. They would represent 32% of all consented homes in 2022 compared to 41% in 2019.
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Graham Burke, chairman of the Construction Industry Council, says demand in construction is good and residential building is “going crazy.”
Westpac senior economist Satish Ranchhod said the forecasts in the pipeline report were “a bit pessimistic.”
Two key factors had driven domestic activity in recent months. One was New Zealand that contained the Covid-19 virus earlier than expected.
The other was the policies implemented by the Government and the Reserve Bank had a “supercharged” demand and that had been shown more clearly in the housing market with house prices soaring.
There could be a bit of a slowdown in construction early next year because developers had suspended some projects. Westpac expected a modest cyclical slowdown of around 5 percent.
But housing construction in New Zealand had stunted population growth for many years and several regions still needed far more housing. That, combined with a hot housing market and house price growth, would give many developers a solid incentive to get new projects off the ground.
Westpac expected “steady levels of activity” in construction in 2021 and 2022.
The pipeline report forecasts that the number of housing permits will drop by more than 40 percent to 22,000 by the end of 2022 from more than 37,000 in 2019, “as a result of the worsening economic conditions currently anticipated due to the Covid pandemic. -19 “. .
The report acknowledged significant uncertainty around forecasting Covid’s impact on the industry and the sensitivity of the report’s forecasts to data such as the number of migrants entering the country and the amount of economic growth in the coming years.
