Hope fades for higher, more stable house building level to satiate supply as builders report 70-80% fall in new inquiries; Pipeline seen drying up in 12-24 months; Fear looms of 2009/10-like implosion
Hi Bernard, interested on your thoughts of Kiwibuild coming in to help mitigate the 'bust'. I've asked this in the past, and I see that in Megan Wood's announcement of changes to Kiwibuild last night that the downturn in the housing market was where Kiwibuild was designed to help come in.
On-top of those reasons listed for new-builds slowing down, I also really think the prices of new-builds are becoming increasingly disconnected from the market. For example, a new development in Wainuiomata, Wellington is asking 650k for a 70-80 sqm home, most likely without a carpark. With dropping house prices, you could get a 2 bedroom 'pre-loved - home in Wainuiomata for 100-150k less. Unfortunately for developers, while the price of homes are dropping, the cost of building materials is doing the exact opposite.
There are developers who have next to no internal capacity. When they build they use nothing but subbies; often just one-man bands. And when they decide to stop or slow down construction the subbies have nowhere to go but Australia, or struggle on in the gig economy.
Whereas scale builders can have most of their staff in-house. Say they're building a house a week then they know they need so many chippies, electricians, plumbers, etc to achieve that target. Subbies are used for exceptions. And they keep on building so they're not forever laying off and taking on staff. This is where apprentices get their training.
I don't know. Maybe split Kainga Ora in two: - provider of state housing (the landlord), and the builder (Buildcorp) of those state houses. Kainga Ora contracts many, many years ahead for new houses from Buildcorp.
If we get a government with an ideology of not wanting to be into state housing then they cannot easily cancel five years of build contracts. What they can do is tell Kainga Ora to sell off some of their existing stock - those old mouldy 1950's houses on quarter acre sections. Developers would love to buy them, demolish and put up a 3x3.
Result: - a regular infusion of new houses that levels off the height of booms and the lows of busts.
Right on point again Bernard. It's actually not just the vertical (housing etc) building sector, but all areas of construction, including earthworks through to roading. It's always been this way since I can remember, and it likely will continue to be. You are exactly right in that the boom-bust phenomenon is a key reason for the fragmented, non-cohesive and very transient construction sector workforce. Again, this leads to a risky potential career outlook that causes many young people to not want to get into it, and the long hours for low wages syndrome (been like this since about 1987). So, the smart, good operators say to hell with this and keep leaving for fairer prospects over the ditch. Like I still do....
The other elephant in the room (one of several), is that we (the construction industry) have lost our way. I know I've said it already, but when the Govt. had 'skin in the game' back in the 50's, 60's and 70's up until about 1986, firstly there was a large number of properly trained people being steadily turned out who fell right into the arms of grateful employers. A guy I know who still runs a successful steel manufacturing/fitter & turner type of workshop think's about 50% of the 5,000 or so folk's that were in the N.Z. Railways workshops throughout the country ended up half decent and went on to become business owners or well payed/highly skilled trades people. (Remember, the 1970's were that time when you could actually call up a plumber or house builder or anything else like that and get fairly prompt, timely and professional service). Now, we basically fill the gaping void with far lower skilled 'cheap' imported labour that is absolutely not trained to the same standard as our locals were. This is absolutely not an attack upon or a criticism of a particular type of people who come here to do these jobs; I am the first to state that they were in my experience most often hardworking, energetic, well performing, wonderful employee's by and large. It is rather a criticism of N.Z. Inc's poor solution to solving our skills deficit. Look, I have imported well over 100 or more supposedly 'trained' heavy truck drivers and road workers from Fiji and the Philippines 10-15 years ago. I visited the Philippines twice to personally select the ones from there. The fact is, a developing or third world nation does not have the high standard of industry skills and vocational training that we need, and of which is standard in the likes of a first world nation (E.U./U.K./U.S.A./A.U.). So I ended up having to 're train' personally all of these people to get them to the standard I needed. Why did I not just 'use locals' you ask; simple. The available local prospects were basically unemployable, and this continues to often be the way. (This is the second elephant in the room, but I'll leave that for another day). I paid a lot more $ to the imports who had a better attitude and wanted to work because they were worth it. But don't expect them to come here all set to hit the ground running, properly trained, because they just aren't. Obviously every industry is different, and there are exceptions to the rule. But this was my experience. Some N.Z. employers have also not helped the situation by poorly treating migrants. Wake up N.Z.
We were in London June 2007 and the temperature was 24c on a sunny day and it seemed a hell of a lot hotter than that. I thought it would be pretty unpleasant if it got much warmer! 40+ Would be like being in a blast furnace 🥲
Completely agree Bernard, the govt can keep the construction industry ticking when the house boom stops, or any construction downturn for that matter. My dad has worked in construction his whole career. I remember being in high school during the GFC, and my dad had consistent work and pay the whole time. How? When companies all over the construction industry were folding, and their revenue sources drying up. My dad’s company (being him and my mum) specialised in school buildings, think school halls, playgrounds, office blocks and classrooms. Who bank rolls school building work? MoE (and sometimes fundraising from parents). The ministry of education did not stop funding these pieces of work during the GFC. You might think my dad got lucky? No, he chose school construction, one because it gave back to the local community, and two, because he went through the ‘87 crash, and other downturns in the construction industry and learnt the hard way, losing his job with a young family, that have your projects bank rolled by the govt was safe. Not as much money building houses... but still paying when the bad times come.
A lot of the planned infrastructure for councils and utilities is to deliver on the planned growth in housing. There will be secondary effects wider than construction if these are pulled back.
Bugger building more KO houses. How about evicting those abusing the privilege of a state house and offer to the genuinely needy? I think I’ll vomit if I see another sob story of Mum, Dad and four kids struggling to pay the rent. Maybe Mum and Dad should have delayed the kids and stopped at one? Too hard, bleed the system dry. Some people are too thick to budget and plan ahead.
No. The assumption we all need warm comfortable housing is a myth. If you can’t fend for your children then the states responsibility should extend to; free education, free medical care and food stamps. No child froze to death in nz, no child starved. Very few die from infectious diseases. The rheumatic fever which devastated Maori and PI children has been eroded significantly in the last 3 years. If anything the state could consider underwriting the deposit for low income families with a track record of working. Disclaimer-working class immigrant whose family had 1 radiant heater in our house and used flannel pyjamas and hot water bottles in the winter. No,no, no. No more abuse of state housing.
Bernard, bravo, good to see this topic and the constructive comments you have drawn, most of which I endorse. If it can do anything, the Government can be the counterweight to boom and bust, if it plans well. I am not fooling myself, it will be difficult, but we must offer continuity of residential construction work through Govt contracts, to keep a relatively stable industry going and get training happening as noted here.
Someone mentioned 15,000 houses a year. Recently, we learned in Wellington that an inner city site would provide 30 dwellings for a $30 million cost, which the Govt has signed up to. Let's argue that's excessive, and on a sensible timescale $750,000 per medium density dwelling (land plus dwelling) could be achieved. That is over $11 billion for 15k dwellings, or not far short of the cost of all pensions. But of course, most of these should be sold. Let's say the Govt loses a bit on sale to help strugglers - but it might 'only' be $1-2 billion. In relation to all other things public money is being flung at right now this looks like a bargain, with better health and child wellbeing an uncounted benefit here.
My 'f'rinstance' numbers here illustrate an enormously frustrating issue with public housing provision. It is possible, but no one does it, to calculate how much it costs to subsidise public rental housing, right now. Only an expert in Kainga Ora accounts could come up with a figure, but they don't give you one and never have. This has always stymied me in efforts to put a scale on the cost of providing publicly owned rental property. An average should be a headline number all Govts have to display, correctly calculated. Cost of capital at Govt borrowing rate, maintenance, land and bulld costs, less rent obtained.
We could then start to have a reasonable conversation about increasing the number, scaling this cost against operations costs for health, pensions etc.
In 1990, there were about 70k State-owned rental properties. At that time the population was 3.3 million. Thirty years later we have 50% more people in the country and roughly the same number of State-owned rentals (I ignore Council rentals and 'social' housing provision, which will make a few thousand difference over the 3 decades, but not really be relevant at population growth scale). It is nuts to think we have roughly the same number of State-owned rental houses now as over 30 years ago, after population has grown 50%.
Every 'housing' minister in NZ has failed over this time to do a basic job of informing us of relevant facts about public housing, let alone delivering more.
Agree that investment in social infill and larger scale dev would be timely... although naysayers might rightly say to do so in a period of such high input costs wouldn't be smart. The short-term cost impact negating (again) the much longer term societal cost of not getting on with it.
On that inflationary point, what does the fact demand for new builds has dried up to this extent mean for the near/mid-term cost of building?
Product prices are going through the roof but if demand for new builds has cratered to such a significant extent, does this lack of demand bring input pricing back to a more sensible place in time?
Is there margin to be lost anywhere?
Does it also bring back the cost of labour?
Or is the inflation entirely a supply-side issue for both product and labour? In the case of GIB, I assume so!
I recently bought a Williams Corp townhouse in Chch. These guys are the second largest home builder in the country, largely building compact (70sqm) townhouses, minimal internal walls, open plan living/kitchen/dining, small yards, limited parking. They sell these at a 600k to 800k price range.
Surely, with the margin they take on land and the townhouse, they're delivering these at a cost much, much lower than that. And they keep building, keep announcing new developments, in desirable areas and cities, at that price point. Same designs, repeated, again and again and again.
Yet, it always seems more complicated at the Government level.
This should be looked at as transitional housing, even if that means it's home for 1 year, 3 years or 6 years. It's not a home for 25 years... if we can fix the market... hence the simplicity of build suits.
If anything, I'd welcome higher and more dense, although NIMBYS would likely shutdown 'social' housing that goes beyond the density of terraced townhouses. Even townhouses are a hard sell..
The first is about housing shortage in 1940's, the second a quick run through government involvement in same from immigration days through to 21st century
Key statement from the latter - "Reducing intervention
In the 1970s the government believed the housing shortage was largely solved. While it continued to lend to low-income home buyers, its focus changed to promoting private-sector lending. In 1984 a reforming Labour government deregulated the banking sector, significantly increasing the number of players in the mortgage market. It also stopped the family-benefit capitalisation scheme and introduced market rents for higher-income state-house tenants to encourage them to seek private accommodation...." etc.
Hi Bernard, interested on your thoughts of Kiwibuild coming in to help mitigate the 'bust'. I've asked this in the past, and I see that in Megan Wood's announcement of changes to Kiwibuild last night that the downturn in the housing market was where Kiwibuild was designed to help come in.
On-top of those reasons listed for new-builds slowing down, I also really think the prices of new-builds are becoming increasingly disconnected from the market. For example, a new development in Wainuiomata, Wellington is asking 650k for a 70-80 sqm home, most likely without a carpark. With dropping house prices, you could get a 2 bedroom 'pre-loved - home in Wainuiomata for 100-150k less. Unfortunately for developers, while the price of homes are dropping, the cost of building materials is doing the exact opposite.
There are developers who have next to no internal capacity. When they build they use nothing but subbies; often just one-man bands. And when they decide to stop or slow down construction the subbies have nowhere to go but Australia, or struggle on in the gig economy.
Whereas scale builders can have most of their staff in-house. Say they're building a house a week then they know they need so many chippies, electricians, plumbers, etc to achieve that target. Subbies are used for exceptions. And they keep on building so they're not forever laying off and taking on staff. This is where apprentices get their training.
I don't know. Maybe split Kainga Ora in two: - provider of state housing (the landlord), and the builder (Buildcorp) of those state houses. Kainga Ora contracts many, many years ahead for new houses from Buildcorp.
If we get a government with an ideology of not wanting to be into state housing then they cannot easily cancel five years of build contracts. What they can do is tell Kainga Ora to sell off some of their existing stock - those old mouldy 1950's houses on quarter acre sections. Developers would love to buy them, demolish and put up a 3x3.
Result: - a regular infusion of new houses that levels off the height of booms and the lows of busts.
Right on point again Bernard. It's actually not just the vertical (housing etc) building sector, but all areas of construction, including earthworks through to roading. It's always been this way since I can remember, and it likely will continue to be. You are exactly right in that the boom-bust phenomenon is a key reason for the fragmented, non-cohesive and very transient construction sector workforce. Again, this leads to a risky potential career outlook that causes many young people to not want to get into it, and the long hours for low wages syndrome (been like this since about 1987). So, the smart, good operators say to hell with this and keep leaving for fairer prospects over the ditch. Like I still do....
The other elephant in the room (one of several), is that we (the construction industry) have lost our way. I know I've said it already, but when the Govt. had 'skin in the game' back in the 50's, 60's and 70's up until about 1986, firstly there was a large number of properly trained people being steadily turned out who fell right into the arms of grateful employers. A guy I know who still runs a successful steel manufacturing/fitter & turner type of workshop think's about 50% of the 5,000 or so folk's that were in the N.Z. Railways workshops throughout the country ended up half decent and went on to become business owners or well payed/highly skilled trades people. (Remember, the 1970's were that time when you could actually call up a plumber or house builder or anything else like that and get fairly prompt, timely and professional service). Now, we basically fill the gaping void with far lower skilled 'cheap' imported labour that is absolutely not trained to the same standard as our locals were. This is absolutely not an attack upon or a criticism of a particular type of people who come here to do these jobs; I am the first to state that they were in my experience most often hardworking, energetic, well performing, wonderful employee's by and large. It is rather a criticism of N.Z. Inc's poor solution to solving our skills deficit. Look, I have imported well over 100 or more supposedly 'trained' heavy truck drivers and road workers from Fiji and the Philippines 10-15 years ago. I visited the Philippines twice to personally select the ones from there. The fact is, a developing or third world nation does not have the high standard of industry skills and vocational training that we need, and of which is standard in the likes of a first world nation (E.U./U.K./U.S.A./A.U.). So I ended up having to 're train' personally all of these people to get them to the standard I needed. Why did I not just 'use locals' you ask; simple. The available local prospects were basically unemployable, and this continues to often be the way. (This is the second elephant in the room, but I'll leave that for another day). I paid a lot more $ to the imports who had a better attitude and wanted to work because they were worth it. But don't expect them to come here all set to hit the ground running, properly trained, because they just aren't. Obviously every industry is different, and there are exceptions to the rule. But this was my experience. Some N.Z. employers have also not helped the situation by poorly treating migrants. Wake up N.Z.
We were in London June 2007 and the temperature was 24c on a sunny day and it seemed a hell of a lot hotter than that. I thought it would be pretty unpleasant if it got much warmer! 40+ Would be like being in a blast furnace 🥲
Completely agree Bernard, the govt can keep the construction industry ticking when the house boom stops, or any construction downturn for that matter. My dad has worked in construction his whole career. I remember being in high school during the GFC, and my dad had consistent work and pay the whole time. How? When companies all over the construction industry were folding, and their revenue sources drying up. My dad’s company (being him and my mum) specialised in school buildings, think school halls, playgrounds, office blocks and classrooms. Who bank rolls school building work? MoE (and sometimes fundraising from parents). The ministry of education did not stop funding these pieces of work during the GFC. You might think my dad got lucky? No, he chose school construction, one because it gave back to the local community, and two, because he went through the ‘87 crash, and other downturns in the construction industry and learnt the hard way, losing his job with a young family, that have your projects bank rolled by the govt was safe. Not as much money building houses... but still paying when the bad times come.
A lot of the planned infrastructure for councils and utilities is to deliver on the planned growth in housing. There will be secondary effects wider than construction if these are pulled back.
Bugger building more KO houses. How about evicting those abusing the privilege of a state house and offer to the genuinely needy? I think I’ll vomit if I see another sob story of Mum, Dad and four kids struggling to pay the rent. Maybe Mum and Dad should have delayed the kids and stopped at one? Too hard, bleed the system dry. Some people are too thick to budget and plan ahead.
No. The assumption we all need warm comfortable housing is a myth. If you can’t fend for your children then the states responsibility should extend to; free education, free medical care and food stamps. No child froze to death in nz, no child starved. Very few die from infectious diseases. The rheumatic fever which devastated Maori and PI children has been eroded significantly in the last 3 years. If anything the state could consider underwriting the deposit for low income families with a track record of working. Disclaimer-working class immigrant whose family had 1 radiant heater in our house and used flannel pyjamas and hot water bottles in the winter. No,no, no. No more abuse of state housing.
Bernard, bravo, good to see this topic and the constructive comments you have drawn, most of which I endorse. If it can do anything, the Government can be the counterweight to boom and bust, if it plans well. I am not fooling myself, it will be difficult, but we must offer continuity of residential construction work through Govt contracts, to keep a relatively stable industry going and get training happening as noted here.
Someone mentioned 15,000 houses a year. Recently, we learned in Wellington that an inner city site would provide 30 dwellings for a $30 million cost, which the Govt has signed up to. Let's argue that's excessive, and on a sensible timescale $750,000 per medium density dwelling (land plus dwelling) could be achieved. That is over $11 billion for 15k dwellings, or not far short of the cost of all pensions. But of course, most of these should be sold. Let's say the Govt loses a bit on sale to help strugglers - but it might 'only' be $1-2 billion. In relation to all other things public money is being flung at right now this looks like a bargain, with better health and child wellbeing an uncounted benefit here.
My 'f'rinstance' numbers here illustrate an enormously frustrating issue with public housing provision. It is possible, but no one does it, to calculate how much it costs to subsidise public rental housing, right now. Only an expert in Kainga Ora accounts could come up with a figure, but they don't give you one and never have. This has always stymied me in efforts to put a scale on the cost of providing publicly owned rental property. An average should be a headline number all Govts have to display, correctly calculated. Cost of capital at Govt borrowing rate, maintenance, land and bulld costs, less rent obtained.
We could then start to have a reasonable conversation about increasing the number, scaling this cost against operations costs for health, pensions etc.
In 1990, there were about 70k State-owned rental properties. At that time the population was 3.3 million. Thirty years later we have 50% more people in the country and roughly the same number of State-owned rentals (I ignore Council rentals and 'social' housing provision, which will make a few thousand difference over the 3 decades, but not really be relevant at population growth scale). It is nuts to think we have roughly the same number of State-owned rental houses now as over 30 years ago, after population has grown 50%.
Every 'housing' minister in NZ has failed over this time to do a basic job of informing us of relevant facts about public housing, let alone delivering more.
Agree that investment in social infill and larger scale dev would be timely... although naysayers might rightly say to do so in a period of such high input costs wouldn't be smart. The short-term cost impact negating (again) the much longer term societal cost of not getting on with it.
On that inflationary point, what does the fact demand for new builds has dried up to this extent mean for the near/mid-term cost of building?
Product prices are going through the roof but if demand for new builds has cratered to such a significant extent, does this lack of demand bring input pricing back to a more sensible place in time?
Is there margin to be lost anywhere?
Does it also bring back the cost of labour?
Or is the inflation entirely a supply-side issue for both product and labour? In the case of GIB, I assume so!
I recently bought a Williams Corp townhouse in Chch. These guys are the second largest home builder in the country, largely building compact (70sqm) townhouses, minimal internal walls, open plan living/kitchen/dining, small yards, limited parking. They sell these at a 600k to 800k price range.
Surely, with the margin they take on land and the townhouse, they're delivering these at a cost much, much lower than that. And they keep building, keep announcing new developments, in desirable areas and cities, at that price point. Same designs, repeated, again and again and again.
Yet, it always seems more complicated at the Government level.
This should be looked at as transitional housing, even if that means it's home for 1 year, 3 years or 6 years. It's not a home for 25 years... if we can fix the market... hence the simplicity of build suits.
If anything, I'd welcome higher and more dense, although NIMBYS would likely shutdown 'social' housing that goes beyond the density of terraced townhouses. Even townhouses are a hard sell..
Re housing in nz if you have time and patience what about https://nzetc.victoria.ac.nz/tm/scholarly/tei-WH2-2Hom-c17.html and https://teara.govt.nz/en/housing-and-government/sources
The first is about housing shortage in 1940's, the second a quick run through government involvement in same from immigration days through to 21st century
Key statement from the latter - "Reducing intervention
In the 1970s the government believed the housing shortage was largely solved. While it continued to lend to low-income home buyers, its focus changed to promoting private-sector lending. In 1984 a reforming Labour government deregulated the banking sector, significantly increasing the number of players in the mortgage market. It also stopped the family-benefit capitalisation scheme and introduced market rents for higher-income state-house tenants to encourage them to seek private accommodation...." etc.
and recycle back to 1940's??