Solving the boom-bust cycle of the construction sector can and should be done by whomever forms the next government, the Master Builders Association says
After enduring decades of volatility, the head of Master Builders says it's time the government became involved by committing to its own long-term pipeline of projects, as well as looking to underwrite some private work.
“Take state housing for example, what we've had with successive governments is really inconsistent approaches to continuing to build state housing," David Kelly said on the release of the association's election manifesto.
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He said following the Global Financial Crisis there was a significant slowdown in building, which then tried to catch up when the market got hot.
“And they've overheated the market, including through their own land acquisition programme ... so that's a really good example of where the government [should] say, look we will continue to have a long and consistent programme of building state housing. I think they could make a statement on that."
He also said the bounce-back after the GFC could have been quicker, as it was in Australia where "policymakers have been more active in providing counter-cyclical incentives to boost demand during downcycles".
“Following the GFC, house building in New Zealand dropped 50 percent and the residential construction sector lost 25 percent of its workforce. It took seven years for the workforce to recover to pre-GFC levels. By contrast in Australia it only took two years to return."
Kelly said parties were open to the idea and understood the issue, but none had yet put such a policy together.
He said it was not just a matter for one government either, with solutions needing to cross political cycles in order to be effective.
“I don't think it's that hard to make a commitment to keep building consistently.”
He’s not just talking about state housing, there are schools and hospitals and plenty else in the construction sector to keep the pipeline full.
“The current Government have, to be fair, tried to do some things that ameliorate the worst of it, like some of the partial underwrite of residential development, which has been quite useful. I haven't really seen much at all from National, Act or Greens so we need to see them respond to this.
"The whole boom-bust thing is such a significant thing that governments, successive governments, and some of the work by the current government have just ignored and just put into the too-hard basket.”
"The reality is if you've got an entry-level minister who's given building and construction they're still learning what it means to be a minister and they don't have a lot of sway. So that's where we've been disappointed over quite a long period of time.” - David Kelly
He said the work the Infrastructure Commission was doing around long-term planning was good, and vertical construction should also be included.
The Government has committed to building an extra 3000 public homes which it announced in Budget 2023. Where these will go is soon to be confirmed via the latest Public Housing Plan update.
Kelly said anything that incentivised builds was also a good idea, including the tax incentives for those who build to rent, and National's plan to incentivise local councils to build more.
And a variation in funding tools – particularly for local councils – was required because development could not keep getting lumped on ratepayers.
Critical to smoothing the cycle, Kelly said, was better procurement processes from government, something work has been underway on.
Last year our political leaders spent $51.5 billion dollars buying things.
“The government, through its many agencies, is a very big player in vertical construction. It's about 20 percent of that market so it has a really important leadership role.
“Where the government establishes the benchmark in terms of procurement, that tends to flow into the rest of the market. So it's not a regulatory role, it's a leadership role.”
Alongside procurement, better consenting and inspection processes are desperately needed to improve efficiency.
The Ministry of Business Innovation and Employment is currently reviewing the consenting process, with options for reform including greater national direction and consistency.
And to get things moving the sector needed to be taken more seriously around the Cabinet table.
“Historically, building and construction has been well down the ranks. The reality is if you've got an entry-level minister who's given building and construction they're still learning what it means to be a minister and they don't have a lot of sway. So that's where we've been disappointed over quite a long period of time.
“What we've got at the moment, which is helpful, is the current minister with both housing and building and construction, and what we've seen is that it's much more effective. So we would go further and say, put it in with infrastructure as well.”
Kelly would not go so far as to say the country was on the verge of "bust", but he warned of the current "correction" following a boom for the sector post-Covid.
