By Steve Bohling August 18, 2019 Trade Focus

With pundits making much of softening construction numbers and low sector confidence, we ask some of the key group home and multi-unit builders what their take is on a sector that’s said to be “in freefall”.

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.

Before I get to the builders themselves, let’s look at what the pundits looking at the residential construction sector from the outside consider to be the state of play.

BDO’s 2019 Construction Survey Report, released in June, talked of a vulnerable building sector, confirmed “cash flow challenges on the rise” and that construction was “increasingly divided between the good operators ... and those with significant fragility.”

Although the consensus of those polled for the report was “slight optimism for business growth”, BDO also comments that there are “limited expectations of improvement in margins”, that bonding capacity is “a real issue” and that the sector will “become more challenging and continue to constrain those that lack real balance sheet strength”.

Regular NZ Hardware Journal contributor, CreditWorksAlan Johnston, was at the launch of the BDO report which he labels “a very good insight into the current status of the NZ construction industry”.

His key outtakes from the launch: whereas almost half of all contractors/sub-contractors in Christchurch need more work, in Auckland a quarter of contractors have more than 18 months’ forward bookings; and that, flying in the face of BDO’s warning of sector fragility, a mere 1% of contractors are using retention insurance.

Next, in July we heard about Aecom’s 10th annual Sentiment Infrastructure & Buildings Construction Survey New Zealand, which reported a return of industry confidence to pre-Election levels, albeit with caveats, namely concerns about procurement, materials and skills.

Says the Aecom survey: “While optimism around delivery and investment for both the infrastructure and building sectors has improved, there remain several clouds on the horizon.

“Not only is the global economic backdrop somewhat uncertain, but the industry is still struggling with the usual problems: skills and material shortages; procurement processes that do not apportion risk equitably (and that erode trust); slim margins for firms operating in the sector; and, a short-term mindset that focuses on price at the expense of value.”

But wait, there’s more, says the Aecom survey: “On top of this, the short length of New Zealand’s political cycle makes it more difficult than it should be to enact reforms and inhibits long-term planning by both businesses and Government.”

(Ah, red tape… For more along these lines, see below, where Bruce Kohn, former Chief Executive of the Building Industry Federation, has a nip at the current state of sector legislation reform…)

In contrast to the above and prompting the headline “Confidence weaker with construction sector in freefall”, the ANZ Business Outlook for 31 July had it that “Employment intentions and profitability expectations for the construction sector [have] plummeted to the lowest since 2009.”

With the building sector showing the “weakest profitability expectations across the economy” and with “38% expecting deteriorating profits, the weakest since 2009” no less than a third of construction firms will be cutting jobs, says the ANZ.

Just to put the lid on things, says the ANZ: “Signals out of the construction sector are deteriorating rapidly.”

A prophecy of impending doom or simple headline seeking? Let’s go straight to the coalface and ask some of the top home builders about their issues and outlook.



So, let’s start at the top, with Grant Porteous and GJ Gardner.

Clearly pleased not to be spec building (“a higher risk model”, he calls it), GJ’s laid 1,467 slabs in the year to end March, slightly down from the previous year’s count of 1,580 but still probably more than twice the volume and value achieved by the next largest home builder.

Grant however candidly talks of a lull during the second half of calendar 2018 which lasted until after Christmas, thanks in part to confusion about KiwiBuild, on top of which red tape and simple process held up land becoming available.

On top of this, some landholder expectations have been over the top, but this is changing.

“I think what you’ll see is an adjustment around some land prices. People simply have to be realistic about their expectations about return on land,” he says.

The residential market is a mix nationally, he says, with Auckland having tightened and discounting evident among some other firms that are struggling to sell finished homes.

In contrast, GJ Gardner has also seen a type of consumer Grant Porteous calls “creative controllers”, consumers (not investors) who can afford a new home but don’t want one “off the peg” – they want it their way, from whoa to go, and have been driving GJ’s sales since after Christmas.

“Everybody talks about people being tight with money. Our clients still want to spec their homes. They want the stone benches, they want the extras. They can afford to build and do not want a smaller, lower spec home. Even if it’s a smaller site, it’s about convenience of location.”

Overall, he says: “Rural New Zealand has still been very strong for us – your Taranakis, your Blenheims, your Hawkes Bays... However we are seeing patches – areas like Tauranga that have been bubbling away have got tougher.”

GJ’s may be OK right now but Grant Porteous is well aware of some rightsizing happening around the traps: “Some people are under pressure and laying off staff but we’re not in that situation at the moment,” he says.

“You’ve got to cut the cloth to suit sometimes and that’s where we’re a bit lucky with our business. We try to be a low overhead, high volume, medium to low margin builder but you have to keep your overhead base flexible around the things that you can change.”

Talking of change, GJ Gardner has been quietly looking upwards in terms of scale: “Quite a while ago we knew that, for us to continue to be Auckland’s leading homebuilder, we were going to have to evolve…

“Perhaps less of the single detached dwellings, certainly more shared wall, certainly more duplex and multi-unit stuff and we’ve set up businesses that specialise in that kind of work. We have done a lot more than people realise,” says a quietly pleased Grant Porteous.

Doom and gloom? Not if your offer matches what the market wants.



Happy to be “staying ahead of the market” but also “working on optimising our businesses, making sure we control what we can control,” Paul Bull, CEO at Signature Homes, says the residential market has plateaued and that it will continue “lukewarm and status quo”.

“It may even start to peel back a bit, although, saying that, we’re still getting a good, healthy level of enquiry, which is promising.”

Key issues? The price of land comes up again: “One of the big influences is the price correction that we’ve seen with land developers, so we’re seeing the pendulum swing back into the builder’s court a bit.”

Unlike some of his competitors, the former Carters boss is happy not to be chasing more density-related products.

“I think I think a number of them will catch a cold,” he says flatly. “And some of them will catch flu and some will die.”

“We’re just looking to single family homes, a little bit of medium density, a little bit of state housing, but really just doing what we do.”

Doom and gloom? Not if you stick to what you’re good at.

Aidan Jury, COO of Jennian Homes, is also upbeat in terms of what’s going on, particularly outside the main centres, and says that residential volumes are “going really well”.

However, he qualifies: “Where we’re not seeing confidence at the moment is in the social projects. And even though there’s a lot of talk about large volumes of social projects out there, they’re not flowing through as quick or as plentiful as we have been led to believe.”

Back to the private sector. I’ve been hearing mixed messages about the banks’ willingness to lend? What’s Aidan’s take on this?

“Money has never been cheaper – it’s just a matter of ensuring that it’s available,” he says simply. “Some people can get it, a lot of people can’t.”

Jennian’s other big challenge is in terms of skilled trades availability which is “getting worse by the day in New Zealand”.

Doom and gloom? Not if supply meets demand…



Next, I look further downscale at the small regional builders that form CBS Cooperative. Launched early last year as a Canterbury initiative, the buying group’s target is to include as many as a thousand members nationally by the end of this calendar year.

That’s a real stretch target, seeing CBS currently has “just north of 165 shareholders”, from both the North and South Islands, but even today’s number reflects serious growth from its original band of 30 Cantabrian shareholders…

CBS Co-op Chairman, Carl Taylor, says; “We’re getting the bulk of our shareholder growth from the North Island and I guess that tells us a couple of things.

“First it tells us that the North Island is obviously very busy. We know that Auckland is very busy. We know that Tauranga is very busy.

“And the feedback we’re getting from our members is that it is Still very competitive out there.

“So they’re looking for alternative ways to make their businesses more profitable and more competitive. And I guess that’s why they’re coming to us.”

CBS Co-op’s shareholders include the odd semi-commercial builder – one of them a $25 million a year business – but the “average” shareholder is your “one-man band operator, the small guy the ‘rats & mice’.

“The guy that doesn’t get a look in at the merchants. That’s who’s joining us as a shareholder because he can purchase materials for the same price as the big guys.

“We’re concentrating on filling the gap – giving our shareholders the best rates that they haven’t been able to get before. And also being able to give them a rebate.”

Of which more in the next issue…

Doom and gloom? Not if you have something that no-one else has…



To find out more about the health of the market in larger scale, multi-unit residential, I call Andrew Moore, Commercial Manager at CMP Construction.

As well as working on hotels and retirement projects, CMP has been sticking to its knitting with apartments: “We see that as being the future of residential living in the built-up areas of any of the major cities,” he says.

Is the risk profile not also magnified as the scale of a project increases? “We are a bit different than most builders. We don’t get involved in that horrible tender market where the biggest ‘mistake’ wins the project,” explains Andrew.

Instead, he continues: “We get involved very early on in projects with developers or banks. We come on board either with or alongside consultants. And together we work collaboratively to ensure that a building is designed buildable and efficiently.

“We make sure that buildability is incorporated within the design rather than having to design and consent a building and then having to change it to make it either affordable or buildable,” he says pointedly.

Trouble is, Andrew Moore admits, one of the biggest issues in the market at the moment is the consultants’ ability to provide documentation to a high enough standard that the Council will accept.

“Councils are a bit of a moving target at the moment – everyone’s guessing what they need and what they require and, even once we’ve got a building consent partway through construction, we’re finding that the councils are wanting changes made and that’s costing developers money.

“It’s also slowing up building projects and, as a result, we’re seeing the banks getting nervous. Some banks are now requiring quite a lot higher standard or more stringent standards before they provide funding on a development.

“Banks are requiring documentation from consultants to be 90% complete [and] they’re requiring pricing from builders to be lump sum fixed prices with less than 5% contingency allowances.”

Still, this isn’t all negative says Andrew Moore: “It’s actually quite a good thing. Between the banks and the developers and the builders, everyone wants certainty on design and price.

“The key is to have a strong contract, to have a strong program and to make sure there’s a clear understanding on what a builder is building before he starts on-site.

“If you walk onto the site and you say ‘how are we going to build this?’ it’s too late. The builder needs to be a step ahead of everyone else.

“The key to a successful project is the more planning you do upfront the more successful the project will be.

“Certainly at CMP we’re finding that we can lock in a lump sum a fixed price on a project by working on the design and by committing to the bank and to the developer on a price that we know will get the project built with very few variations.”

Talking of risk, larger scale residential projects have been attracting interest from players without a track record in bigger builds.

“You’ve got companies out there at the moment that used to reclad schools two years ago who have now got tower cranes up,” says Andrew Moore who worries that some of these companies may be over-extending themselves.

“That is one of the reasons why we’re seeing building companies around us collapse. And I think there’s a lot more of that to come yet,” he warns.

But funders getting more and more closely involved in projects, says Andrew Moore, is “a good thing for the industry. They want to make sure that we’ve got bonding or that we’ve got plenty of strength.”

Doom and gloom? Not if you have all your ducks in a row… 


Opinion: What do we want? Change! When do we want it? Now!

Having trod the corridors of power in Wellington for some years, Bruce Kohn, former Chief Executive of the Building Industry Federation, offers a unique insight into the supply side of the industry’s view of the proposed changes to the building regulations:

"The third largest industry in the New Zealand economy by business count, the building and construction sector has many reasons to question Government commitment to its well-being.

"While the signing of the Government-industry Construction Sector Accord for the two sides to work together papered over cracks in the regulatory system, words are no substitute for action.

"It is reliance on the “right words” and promises of action from both the Government and the regulator that give rise to cynicism within the sector that issues to which it devotes thousands of man hours to help resolve will result in meaningful change.

"Industry leaders, accounting firms and mid-level executives who are specialists in their technical areas have emphasised to politicians and MBIE as the regulator over the past five years that all is not well in specific areas.

"Assurances of change have been made to them but action remains mired in the working systems of the public service and the protective public relations veil of the political hierarchy.

"Legislative reform which would see the biggest change since the Building Act of 2004 was promised earlier this year.

"The contemplated changes would, it seemed, address many of the industry’s most pressing issues. [See page 24 for an overview of the proposed changes.]

"The proposed reforms attracted 470 submissions, an indication of a long-bottled desire within the industry for change.

"They followed a welcomed series of consultations by MBIE’s Building System Performance (BSP) branch with industry members.

"Members of the MBIE team openly confessed to having little knowledge of the industry at work.

"Their honesty was accepted in good faith and sector executives welcomed the chance to educate them on what was working and what not.

"They were well aware of some 50 changes in personnel in the branch over the previous three years which had seen the loss of a number of industry respected managers and technical staff.

"A new departmental emphasis on policy formulation could, it was hoped, result through close Government-industry collaboration around the needed reforms.

"Now, however, MBIE says the branch wants to look at how building law changes will “work together to deliver the lift in sector performance that is needed”.

"MBIE says that ahead lies 'a vast amount of work to develop the detailed legislative design. Legislative changes are likely to be rolled out over the next two to five years'.

"An industry view is that this timeframe is far too loose when matched against what executives perceive is an urgent need for action, rather than words which tap positively on the calls for change in specific areas but do not in themselves change anything.

"It may be that the root cause of the problem lies in the Parliamentary business calendar, although there is ample recent evidence of Parliament’s ability to move quickly when Government perceives a need.

"More likely it sits with the BSP and law drafters, who depend on guidance from officials to spell out to them in detail the purpose and intent of the changes they wish to bring about.

"A time frame of two to five years as MBIE envisages it runs into the electoral cycle and will almost inevitably embrace further staff changes.

"Such a timeframe places the BSP in danger of losing the confidence of industry, not to mention that of local Government officials who administer the consent and compliance process.

"They look for urgent action to provide more certainty in product regulation and greater regulatory attention given to high risk product areas.

"Concerns centre on surges in the supply of imports in these areas and their compliance with existing regulation.

"Action to revamp the CodeMark scheme, which has been the subject for months of claims that it is “broken”, is also considered essential.

"Tighter requirements for expert third party assessment and certification that covers ongoing monitoring of quality to ensure compliance with New Zealand requirements in critical product and materials areas are seen as necessary by local body officials and industry executives alike as being in the interests of public safety and consumer confidence.

"We need a clear timetable giving timelines for legislation and regulation agreed between the Government and officials which addresses these issues, even if in stages.

A start on the legislative process two years from now is unacceptable to those who have, over the past three years of successive Governments, urged the changes now under MBIE study."


Who are New Zealand’s biggest home builders?

The following shows BCI New Zealand’s top 20 new home builders by value YTD May 2019 (all dwellings):


New building regulations – what’s in train?

What’s all the fuss about? Billed as “the most significant reforms since the current Building Act was introduced in 2004”, the following is a digest of the proposed changes:

Building products & methods

  • Clarify roles and responsibilities for building products and methods.
  • Require manufacturers & suppliers to provide information about building products.
  • Strengthen the framework for product certification.
  • Make consenting easier for “modern methods of construction including off-site manufacturing”.

Occupational regulation

  • Change the Licensed Building Practitioners scheme (new tiered licensing system creating a progression pathway; new licence for supervision; simplify licence classes; new “behavioural competence requirements” for LBPs).
  • Raise competence standards and broaden the definition of Restricted Building Work.
  • New licensing scheme for engineers; restrict who can carry out safety-critical engineering work.
  • Remove exemptions allowing unlicensed people in plumbing, gasfitting and drainlaying.

Risk & liability

  • Mandate guarantee and insurance for residential new builds and “significant alterations”, and allow homeowners to actively opt out of it.
  • No change to liability settings for Building Consent Authorities.

Building Levy

  • Reduce the Building Levy (from $2.01 to $1.50 including GST per $1,000).
  • Standardise the Building Levy threshold at $20,444 including GST.
  • Allow MBIE to spend raised by the Building Levy funds on “broader stewardship of the building sector”.

Offences, penalties & public notification

  • Increase maximum financial penalties.
  • Set different maximum penalties for individuals and organisations.
  • Extend the time enforcement agencies can lay a charge from 6 to 12 months.
  • Modify the definition of “publicly notify” in section 7 of the Building Act.

Submissions closed on 21 June, a total of 470 submissions having been received.

MBIE is now working through the submissions and expects decisions from the Government by the end of this year, with any legislative changes likely to be rolled out "over the next two to five years".

share this