Build now while the going is good!

By Jess Brunette August 01, 2014 Trade Focus

The construction industry continues to climb up from the slump but predicted labour shortages are beginning to show themselves. Jess Brunette reports.

To view a PDF of the complete feature as it appeared in NZ Hardware Journal magazine, click the download button at the bottom of this page.

The quarter acre dream may be shrinking a little but New Zealanders are still passionate about their homes and, when new buildings (residential or commercial) go up, it’s something most of us want to know about.

This issue we spoke to trade associations, the all-important group home builders and the major training organisation to get their thoughts on how the building trade has been going in the 12 months.

 

ARE WE SEEING A RETURN TO “NICE TO HAVE”?

As the movers and shakers in residential construction, New Zealand’s group home builders have a significant impact on the design of New Zealand’s buildings and have in many cases established a benchmark for the type of houses that New Zealanders call home.

Despite continued stagnation in areas like Wellington and the Hawkes Bay, all of the group home builders I spoke to reported excellent growth in the last year, with Auckland and Canterbury the obvious growth regions, along with promising activity in areas like Bay of Plenty and New Plymouth.

While the going is good, the group home builders are currently putting up more houses than they have in years (see sidebar) with one person going so far as to describe these multiple home builders as “on fire” in the Canterbury region.

We can all see the numbers being built but what type of houses are being built and will the New Zealand home as we know it be changing in future to meet the changed expectations of a post GFC environment?

Jennian HomesDave Wilson has seen a return to demand for more luxurious homes, albeit in a modest fashion. “In the more buoyant times we are now experiencing the wish lists start to grow again. So, during those recessive years where budgets were a little tighter you found that some of the ‘nice-to-have’ homes were taken out of contract, whereas nowadays they are starting to come back,” he explains.

“So we are starting to see the butler’s kitchens, media rooms and that sort of thing, without going over the top, so it just means folks are feeling a bit confident now about capitalising their homes.”

 

HOW AFFORDABLE CAN YOU GET?

At Platinum Homes, CEO Shaun Riley has seen the company expand its range of home designs to meet changing consumer demand. While 85% of the company’s business is still single level brick & tile, Platinum Homes is beginning to offer different designs that reflect the high land prices in some of New Zealand’s major centres.

He says: “We are working on a couple of projects at the moment that haven’t been finalised but have elements of affordable housing in them. So we are looking at that and strategically trying to place our product as something that can be considered affordable.”

As many in the trade have argued, the true cost of a home is not in the materials but in the price of land, and to a lesser extent, the size of the home being built. However this has still had the Government putting pressure on the sector to create homes that can be considered “affordable”.

Given the limitations inherent in trying to build an affordable house on a less affordable piece of land, I asked Shaun Riley what the criteria for an affordable home could be.

“We’ve got a value product called our Alpha range which is exceptional value in the market. So that means a smaller home on a smaller section that is often two-storey to fit it onto a site. We didn’t really have any plans in that area a couple of years ago but now we have a number.”

Interestingly, he adds, the market’s reaction has been varied: “The response to these has been slow at the moment and the stuff we’ve done has been on a project basis working with developers. Also affordable means different things in different areas.”

I also asked GJ Gardner, consistently the largest group homebuilder in recent years, what kind of homes it is creating and could any of them be considered to be a concession to affordability?

GJ Gardner Operations Director Mike Fraser: “As a general rule we typically build a pretty big cross section of homes given the area that we cover, so we’ll have some beach properties, some lifestyle properties and some metro properties. But in terms of the metro properties we haven’t noticed a huge increase in what could be called affordable homes,” he explains.

 

BUILDING JUST ISN’T EASY

So what are the main issues facing the group home builders emerging from a 5-year slump? Although describing themselves as “newbies on the block” Dixon HomesWayne Minnell has seen fast growth in the Bay of Plenty area but is frustrated by some of the red tape involved in getting houses built.

“Probably the biggest issue for the Bay of Plenty is around consents, trying to get them on time – you’ll probably get that answer from most builders at the moment.

“I don’t know whether it’s a lack of resources at the local authorities but consents are supposed to come out in 20 working days whereas at the moment it’s probably between 25 and 30,” he says.

“It’s over the top and sometimes I think people within the local authorities don’t realise how many people they affect in the market in that way.”

Gavin Hunt at Signature Homes has found price and the perception of value by consumers to be a concern: “Obviously, the price of land remains an issue, particularly in Auckland, and compliance costs continue to significantly impact on our clients’ budgets without providing tangible benefits that they can appreciate,” he says.

“Both major political parties were talking about reducing the cost of materials a year or so ago, but perhaps not so much now. As we said at the time, while it might be helpful in a minor way, it is just playing in the margins – the real issues are land and local authority fees.”

 

SKILLS SHORTAGE NOT A MAJOR ISSUE?

What of the much talked about skilled labour shortage at this point? Gavin Hunt says that, as yet, Signature Homes hasn’t experienced any major problems getting skilled labour for its projects except for some instances in Christchurch. And, while the company is very busy in the Auckland market, Hunt has found more problems getting skilled staff at management level than skilled site staff.

Looking ahead, however, many of the players I spoke to continue to predict skilled labour shortages in the coming years, GJ Gardner’s Mike Fraser for one: “We do see some challenges around finding suitable trades but at this stage it’s not a major issue for us as we are fortunate enough to have people wanting to work for us. But, in the next 18 months to two years, that may prove a little more challenging.”

Dave Wilson of Jennian Homes has found good flow through from the appointment of new franchisees in the Waikato and Bay of Plenty but is also concerned about the years to come: “Labour is definitely a concern and it’s going to be an issue. Although it’s good to hear in the budget that the Government was putting a bit more into apprenticeships and that sort of thing, now hopefully that’s not too little too late.

“But there was a lull there through those recessive times where the trades weren’t taking on apprentices and what skilled labour there was has gravitated toward the Auckland and Canterbury markets. It doesn’t mean there has been an absolute clean out of the regions but it does mean that labour is potentially an issue in the future.”

Already reporting difficulty in finding labour with the right level of certification, skills and experience is Shaun Riley from Platinum Homes which has been doing well in the two big centres as well as in Northland in the last year.

“Supply of labour is the biggest issue for us,” he says. “We believe we’ve got a quality product and we don’t want to skimp on construction and want to maintain a high standard so we are quite selective when we choose our subcontractors so it’s been very difficult to find the right quality of people.”

Despite these concerns, Dave Wilson at Jennian Homes feels the current climate is positive and suggests making hay while the sun shines: “There are no great negatives at the moment. Obviously we would like the interest rates to stay down but even forecasting says they are going to stay at relatively manageable levels as far as history goes and we don’t want too many brakes put on with interest rates.

“So it’s good news in the building industry and now is the time to build. It’s a bit of a cliché but houses won’t get any cheaper and if we are going to have labour shortages, and if there are going to be potential resource shortages and that sort of thing that’s only going to push prices up. So now is not a bad time to be getting stuck into it, really.”

 

SKILLED SUBBIES TOP OF MIND

For another perspective on the state of play in the construction market, I talked to some of the many organisations that represent the builders, specialist tradespeople and apprentices across New Zealand’s construction industry about the type of work being done and the main concerns their members are facing, both now and in the foreseeable future.

As with some but not all of the group home builders, skilled labour shortages are top of mind within the trade associations. Registered Master Builders Acting Chief Executive, Brendon Ward: “What we are noticing now that we have come out of the bust cycle is that the ability to access sub-contractors and staff who are skilled and ready to go is there but it is limited.”

Certified Builders Association (CBANZ) Chief Executive, Grant Florence, reports that the skills shortage that the industry forecast 18 months ago is now beginning to bite: “My members are in the carpentry side and they are starting to report shortage of skills and it’s going to get worse before it gets better,” he says.

Over at Master Painters, Training & Assessment Manager, Phil Wilkinson, has seen his members do excellent business with the Christchurch rebuild but also has similar concerns about the times ahead: “The lack of skilled experienced painters will be the biggest problem facing us for the next few years,” he says.

“As a trade we haven’t trained guys over the GFC, and a lot have left the trade or retired and of course it’s coming back to bite us – I’m sure we aren’t the only trade in that position.”

For the Frame & Truss Manufacturers Association, PlaceMakers’ Robert Grimmer confirms this outlook and is particularly concerned with a potential shortage of trained and experienced detailers for future work.

“These are the people that create workshop drawings from architectural plans and detailing is a skill that takes some time to develop and to train, so that’s where there is a real shortage of skill and experience and it’s not one that is trained quickly either.”

Grimmer explains that since the GFC hit in 2008, many of the more experienced detailers have been lost to the frame & truss industry either through retirement, unexpected death, promotion, migration or a shift to other industries where their skills are applicable.

 

LEGISLATION: FRIEND OR FOE?

New legislation can be a boon to the industry and consumers but it can also be a double edged sword.

Additions to the Building Code that come into effect on 1 January 2015 will require all building jobs over $30,000 to have a contract in place, a measure that Brendon Ward from Registered Master Builders feels is a step in the right direction.

“It will put a much greater reliance on builders getting the job done right the first time and having good contracts in place and making sure that they can provide some sort of guarantee or warranty for their work,” Ward explains.

“So builders are going to be required to go back and do any repairs and make good work within the first 12 months and if they don’t then there are potential fines. Our view is that everything should have a written contract in place and we have all those contracts ready to go.”

Grant Florence at the Certified Builders Association has heard some complaints from his members regarding legislation however: “There is growing concern around the balance of lifting the professionalism of the industry versus compliance.

“There’s some recent legislation around consumer protection that is just another set of paper-based compliance requirements that the trade has to meet which is not adding any value, but is adding cost.

“We do need to list the professionals in our industry but I think there’s a balance required; we are starting to see older more experienced builders leaving the sector because that’s not what they want to do.”

 

WHERE ARE THE APPRENTICES?

With a shortage of skilled labour a pressing concern, Ruma Karaitiana, Chief Executive of the Building & Construction Industry Training Organisation (BCITO), offers some useful information on the numbers coming through.

“We started the year with 7,900 apprentices, which was more than we expected, so we grew our numbers very strongly in 2013. At the end of July we were just passing by 8,500 and we are on track to be over 9,000 by the end of the year – that’s pretty dramatic turnaround from under 5,000 at the beginning of 2013. So, from that perspective, it’s all looking good,” he reports.

Of course Ruma Karaitiana doesn’t have a time machine and is realistic that there will be some shortages in the next few years as the apprentices undergo the 3.5 to 4 years to become fully trained.

“Of course it’s not that black and white as they do become productive in terms of their general contribution to the industry within the year but what the industry really needs right now is those fully trained and developed people.”

So what’s the latest outlook? “The forecasts for industry activity are still indicating that we are going to peak around 2017 and then everyone starts debating about how long it’s going to last. But the really critical period is between now and 2017 just because of the lag getting people developed. So everybody is realistic about the fact that we will have some shortages and some of those are going to be, and are being filled by, migration.”

Ruma Karaitiana does see some positive aspects to this adversity however that has been echoed by figures within the trade organisations.

“This situation is encouraging some more innovative practices so we are seeing a greater development around prefabrication and factory building of component parts. So there’s a general mix that’s required to approach this next couple of years. There is also a counter argument that, as some of the planning, consulting and developments of the actual sections to be built on are relatively slow, it might not be as bad as people are imagining. So there are arguments both ways.”

Hopefully the industry can rise to the challenge.

 
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NO BIG CHANGES TO THE GROUP HOMES TOP 10?

The following stats from BCI New Zealand show that the ranking of 2014’s top four group home builders (in terms of dollar value) hasn’t changed in the last year with the top players all showing healthy growth in value and numbers on 2013. Generation Homes did however drop out of the top 10 this year with Horncastle Homes entering our top 10.

Loosely speaking, numbers of homes built tends to correspond with $ value ranking but there are a few exceptions. For example, if ranked by home numbers alone, Kalmar Construction actually pushes Signature Homes out of the top 10 with 314 homes built in the last year. The majority of these dwellings are apartments in the Auckland area with an average value of $107,006 a trend that many of the people I talked to have noticed increasing in recent months.

www.bcinewzealand.com

 

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 BIG PROJECT, SUBSTANTIAL EFFECT?

There has been quite a bit of conjecture over the last wee while that, when the commercial or public scale rebuilding in Christchurch does take off, there will be a knock-on effect into other building sectors.

Chief Executive of the Building Industry Federation, Bruce Kohn for one is particularly concerned with the situation down in Canterbury. Kohn explains that the recent announcement of the Justice Precinct building contract in Christchurch to Fletcher Construction has created some concern about a lack of skilled and qualified labour, particularly in the sub trades, to complete the multi-million dollar project.

“That project will probably require an average of 700-800 people on the site. And that’s going to put a lot of pressure on the sub trades market in particular. They will almost get into a ‘pick and choose’ situation for what work they take, particularly as at the same time you have the residential side still going ahead. So there will certainly be a lot of pressure on that sub trades/specialists market.”

I asked Master Plumber’s Greg Wallace what potential impacts this project could have on the approximately 3,500 apprentices and tradesmen (60% of the NZ plumbing industry) the organisation represents.

“The Justice Precinct contract hasn’t been awarded to a sub trade at the moment. I don’t think that one project will be an issue but it will be the projects coming after that will put some stress on the qualified New Zealand plumbing industry particularly. So you have the Justice Precinct, a potential stadium, and a hospital and those are the ones that will change the perspective a little bit.”

How about a clash of interest between residential and public or commercial work? Could sub trades shifting to these larger projects create a shortfall at the expense of Greg Wallace’s members?

“Plumbing firms seem to specialise, so normally if you are predominately residential the commercial activity projects aren’t something that is automatically attractive but it does put pressure on for the tradesmen and apprentices. For the market the biggest concern is that we need still to be pushing through more apprentices into the trade and the biggest challenge of that is getting plumbing companies, or hosts, to take on that further cost to the business before some of these projects come on board,” Wallace says.

www.christchurchrebuild.co.nz/justice-precinct-unveiled/

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 SPECIAL HOUSING AREAS: WHERE ARE THEY?

One of the most touted solutions to the affordable homes crisis has been the designation by the Auckland Council of Special Housing Areas in the outlying suburbs of Auckland. So have the local authorities delivered on last year’s production promises?

“Not that I have seen,” says Robert Grimmer from the Frame & Truss Manufacturers Association. “I know there are a couple of projects, one in Wellington, which is on the go at the moment, but there was one big Auckland council project at Waimahia Inlet in South Auckland which was supposed to be happening earlier this year, but there’s still no progress there as far as I am aware of.”

Other players are also in the dark as to the progress of these areas. Word from both the trade associations and group home builders is that the types of building they are making or working on haven’t changed significantly in size or cost in the last 12 months. Affordable family homes (excluding apartments) generally qualify as two-storey town house style units, either semi-detached or terraced with two or three bedrooms to make the best use of sections. As most of the players I spoke to for this piece haven’t seen much in this type of building being made it seems that the Special Housing Initiatives are running well behind schedule.

Registered Master Builders’ Brendon Ward sums up the situation: “The Special Housing Areas are very slow to get off. There’s a lot of building to be done and it’s yet to start in most cases so at the moment they are just circles on a map.”

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RECORD ATTENDANCE CBANZ CONFERENCE 2014 

Certified Builders held its largest ever Annual Conference & Expo in Hamilton over 26-28 June with a record number of over 500 attendees and 70 trade stalls, reflecting record member numbers for the organisation in 2014.

The Minister for Building & Construction and Housing, Nick Smith, opened the conference whose highlights included the announcement of the winners of the Certified Builders Apprentice Challenge (top place going to Joe Sparks from Auckland, second to Marcus Hand from Wellington and third to Tauranga’s Kalem Uttinger).

A Life Membership, Certified Builder’s highest honour, was awarded to Richard Merrifield for his years of service to the industry at the highest levels including his work on Building & Housing Taskforce and the Building Act Review Advisory Group. Former Certified Builders Chairman, Allan Shaw, was also made an Honorary Member for his service to the association and his 40 years in the industry.

The conference also hosted the Fletcher Window Door Systems Charity Auction, which raised $7,000+ for the Certified Builders Apprenticeship Scholarship Trust, which helps future builders to complete their apprenticeship in times of personal hardship.

www.certified.co.nz

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