What comes next?
It has been a busy time for many of us as we get back up and running in a post COVID-19 lockdown environment. The big question is what comes next. Maintaining a strong pipeline of work is critical to our industry and to New Zealand’s economic recovery.
Residential construction is the largest part of our sector, with total value in 2019 sitting at around $24 billion. It employs roughly 150,00 New Zealanders and last year built 38,000 homes.
While it is often the large commercial projects that gain a lot of attention, the residential sector will have a substantial impact on our economic recovery. We support the Government’s focus and funding of shovel ready infrastructure projects, now we want to see further support for the residential sector. Especially on how we can avoid the boom and bust cycles that have long plagued our sector.
Stimulating demand in the residential construction sector
The Government’s Wellbeing Budget this year is allocating a substantial amount of funding for our sector by enabling:
- Kainga Ora to deliver an extra 8000 new public and transitional homes
- learners to undertake vocational education and training without fees for the next 2 years
- businesses to keep apprentices on with the Apprenticeship Boost
Through the Budget, the Government has set aside $20 billion for further financial investment to mitigate the economic effects of COVID-19. It’s great to see the Government’s recent announcements about the shovel ready projects. With over $460 million allocated, there’s the real potential to start unlocking the vertical and horizontal infrastructure that’s critical for increasing the supply of housing. Too often a lack of infrastructure can delay building or increase the costs of housing.
Despite these initiatives, there is only so much upfront investment the Government can undertake right now. Our sector will continue to rely heavily on consumers for work. We are looking across the ditch to what Australia is doing to stimulate their residential building. Master Builders Australia estimates that nearly 100,000 new builds will not go ahead this year after lockdown. Such a drastic drop will devastate the sector. It will also put a handbrake on the ability of the sector to rebuild in the coming years.
In response to this, the Australian Federal Government is allocating $688 million to give $25,000 grants to eligible owner-occupiers (including first home buyers) to build a new home or substantially renovate an existing home. HomeBuilder will assist the residential construction market by encouraging the commencement of new home builds and renovations. State governments in Western Australia and Tasmania are also offering their own incentives that build on those that Home Builder offers.
Reports from the Australian Treasury shows that these types of incentives do work. During the Global Financial Crisis, the Rudd Government spent over $1.5 billion to support housing construction through similar time-limited grants to first home buyers. The Howard Government, during an economic slowdown in the early 2000s also propped up the housing sector.
We’re working with members and stakeholders to investigate whether similar measures can work here. There’s no doubt that stimulating demand in new house construction would support businesses across the sector and reduce the risk of further unemployment. It would also assist in providing sector and public confidence in residential construction.
We strongly believe this is a good time to build for any one in a position to do so. We have a skilled and available workforce and the financial drivers are good – low interest rates and relaxed LVRs. We are actively communicating these messages across our channels to promote consumer confidence and support the sector.
With uncertainty around other investments, and interest rates low – property remains a safe venture for the future. Kiwis continue to invest in bricks and mortar for a reason, we can see it, we understand it, and its value holds up over time.
Building and Construction will be a key player in New Zealand’s economic recovery. I am looking forward to the discussions with Government on how industry and government can work together for a positive outcome.