The Year Ahead

8 February 2023

Welcome to 2023. We hope you have taken time to rest and recharge over the summer break. The year is shaping up to be another interesting one. Changing economic, political and environmental conditions continue to create a sense of uncertainty. While this can be challenging, we are a resilient sector, and we have been here before. Unlike the last recession where the work stopped suddenly, this is a more gradual decline which provides a window of opportunity to prepare. Now is the time to plan and act, as many of you have done.

Changing economic outlook
Inflation is likely the toughest issue the sector is facing. The latest Statistics New Zealand consumer price index increased 7.2 percent in the 12 months to December 2022, holding steady from the quarter before. However, tradable inflation, which includes goods and services that are imported or in competition with foreign goods, was at 8.2 percent. Everyone in our sector is feeling this strain.

However, material price inflation could be starting to ease. CoreLogic’s Construction Cost Index shows that while the rate of quarterly inflation in house-building halved in the last quarter of 2022, it is still at an annual high of 10.4 percent. Cost increases for the fourth quarter were at 1.7 percent, down on the 3.5 percent increase in the quarter before that. We hope this is a trend that continues.

While the cost of building continues to be high, borrowing is also becoming more expensive. Mortgage rates are high and as a result, house prices are falling. This can make it a more difficult equation for those weighing up buying existing stock or building new. Many of our members are feeling this change.

What you can do
We all need to focus on planning and adjusting to the new environment. Closely managing your financial situation is essential, - understand what it is today, and what you expect it to be in the coming months. You should also consider the type of work you are doing, and whether you should diversify your workload.

I know many of you are already taking proactive steps to shore up your businesses. I was heartened to speak to a member who is approaching the situation with diligence. With enquiries for new builds decreasing, he is galvanizing his network of contacts to find new work and strengthen his business position. This also required careful planning on his part, as the work would be quite different to what he had been doing – smaller renovation work, with different requirements, and different margins. I pleased to hear he was taking these steps now, I urge all members to follow suit.

While some of us have been through this cycle before, for many it is new, and you may not have the same experience and networks. We want to stress that it is important to seek help, and seek help early. Investing in professional financial, legal and general business advice is worthwhile, especially in these times of uncertainty. We have a lot of resources on Elevate and Offsite which can help as well. And if your mental health is deteriorating, reach out for support. Master Builders offers a free and confidential helpline for members and their staff, which can be found here on our website.

Advocating for the sector
Master Builders continues to be very active in advocating to Government and sector organisations on your behalf. The focus on inflation and the cost of living will continue right up to the election in October. The May budget will also be a critical one for all. We will continue to keep you updated on what this means for the sector.

Last year we submitted on nine Government proposals, including the Building Code Update 2022, Review of the Building Consent System, Residential Building Supplies Market Study, and the H1 Code Transition Period, among others. We are currently developing our policy priorities for the new Government and will share these with you once finalised. RMA reform, consenting and climate change will continue to be important focus areas for us over the year ahead. We will also be focusing on labour and immigration settings, to find long term mechanisms to manage the ongoing skills shortage. The solution requires a mix of training and immigration. It is great to see apprentice numbers increase over the recent boom period, our aim now is to ensure these people stay in the sector. But this only addresses one part of the issue. We also need experienced workers; this requires immigration settings which are flexible and accessible. Master Builders is also working with the new Workforce Development Council for Construction and Infrastructure - Waihanga Ara Rau to ensure we have the right skills in place for the delivery of future sector needs.

The New Year
For our members affected by the floods, particularly those in Auckland, we know this has not been an easy start to the year. We are thinking of you. We understand this will create some additional challenges as the areas recover. It will take a while to understand the extent of the damage. Master Builders will be working with Government through the Construction Sector Accord to ensure the recovery proceeds as rapidly as possible and the right support is available. While the year ahead may include some challenges, we are a resilient sector. Now is the time to prepare and plan. We at Master Builders look forward to supporting you and your business this year.

Ngā mihi
David Kelly