Builders urged to hold on to their hammers

New dwelling consents fell 26 per cent in the year to November, net migration is negative and many builders have laid off staff. Some are even warning of an industry collapse.

But if they can hang on, there may be better days coming. Economists are worried that New Zealand is no longer building enough houses to meet demand, especially if a modest increase in population occurs later this year.

"If consent issuance does not pick up from current levels, or if net migration is stronger than expected, we could get into a situation where we are possibly underbuilding," ASB economist Jane Turner said.

She based her theory on the assumption that the population would rise by about 1 per cent a year, particularly if expat Kiwis returned as predicted from overseas. That meant that by the end of this year, the population would increase to 4.3 million, up 44,000.

"Based on this, we think there is a need for at least 17,500 additional dwellings," she said.

If trends continued, she estimated that only 15,000 consents would be issued in the next year.

Mortgage brokerage pioneer Mike Pero thought it was possible that many Kiwis would return after being laid off overseas and would want to buy houses with their overseas savings.

"Some people just might think, `Oh well, we're in England and we've got pounds or in New York and we've got US dollars, is there a better time to go home?' "

BNZ economist Tony Alexander believed a housing shortage was on the horizon and predicted "a huge shortage of tradespeople in two or three years' time".

"There's going to be a need for a hefty construction surge over 2010-2011 and the people won't be there to build these houses.

"Hence, the investors ... who realise this are coming out and looking for some bargains in the property market now with interest rates going down. They're looking to lock in a low fixed rate in the middle of next year."

Evidence that rental investment is poised for a resurgence is scant. Nevertheless, a survey of 550 property investors by Mike Pero Mortgages and landlords.co.nz last month found that more than half expected to buy property by the end of the year.

Mr Pero said ordinary investors, fed up with low bank returns, might return to property.

Dean Buckeridge, Canterbury-Westland president of Architectural Designers New Zealand, agreed. He had seen several people lately who had been planning to build for some time and were attracted by the fall in land prices, easing international prices for materials and builder availability.

He said building data was painting a false picture because it had not caught up with a "significant increase" in the past three months.

"The initial slowdown became apparent to us in November 2007 and affected volume home builders particularly ... hence the number of bankruptcies in building companies." But since the outcome of the United States and local elections, "there has been a constant, sustained increase in inquiry".

His optimism is at odds with a survey taken in October by eBoss, which showed most of the 113 building industry professionals surveyed were braced for a two-year hit.

Mr Buckeridge acknowledged that things were tough for architects.

"I know a lot of people who have been laying off staff, around Christchurch certainly."

But "everybody I talk to tells me they have work, that they haven't got a huge amount but they all seem to have a few months' work ahead of them".

In the building industry, however, an upturn is very hard to see.

Richard Carver, managing director of Jennian Homes, believed up to 60,000 people could leave the wider building industry before it hits bottom in six to eight months' time.

The building and associated industries, such as cartage, employed 200,000 people when they were fully manned, he said.

"This would be the worst we've faced in living memory."

Many skills would be lost, to New Zealand's detriment. "The trouble is when you lose these people, they end up going and doing other things."

Registered Master Builders Federation chief executive Warwick Quinn was also alarmed.

"If you look at the consent figures, they were up to 25,000 to 35,000 four or five years ago, and they're now down to something like half that amount at the moment."

Mr Quinn said New Zealand had a seven-year cycle where supply lagged behind demand and pushed up prices.

What put the industry at risk was not an upswing but a big surge in demand. "But I doubt that's going to happen".

What gives builders some hope at the moment is commercial building, which has held up relatively well.

Consents rose 6.5 per cent by value in the year to November and many builders could end up moving into commercial building, particularly if there's a big boost to infrastructure.

The federation is calling for more interest rates cuts, a simpler consent process, and the freeing up of more land for development.

"You need to restore confidence in the property market," Mr Quinn said.

"I suspect people will be reluctant to invest in property, or extend their property or build a new property until they have confidence that property values aren't going to fall."

Mr Carver expected business-savvy builders would survive by carefully managing their cashflow and staffing, and ensuring there was no wastage on site.

But he predicted more building companies would go to the wall in the next three months.

"The first half will be pretty horrible," he said.

- © Fairfax NZ News