Is the Canterbury rebuild is hitting its peak

Houses under construction at the Prestons development in the north of Christchurch.
Dean Kozanic

Houses under construction at the Prestons development in the north of Christchurch.

The construction sector and the rebuild is pretty much as big as it's going to get, a couple of pundits think.

The two bank economists reckon the rebuild is around its peak now.

By that they mean that the amount of work going on now and the money being spent is as much as is going to happen at any one time.

The commercial side of the rebuild is ramping up.
Kirk Hargreaves

The commercial side of the rebuild is ramping up.

But the amount of work is miles above what is normal for Canterbury and will stay at around this level for another year or so, the economists think, before it starts to gradually reduce.

The rebuild peaking is also the view of the Ministry of Business, Innovation and Employment.

The construction sector in Canterbury has more doubled in size for the rebuild - to an estimated 31,000 workers, MBIE said in its March 2015 Canterbury Job Matching Report.

The ministry estimates the number of construction workers needed is 33,000. So Canterbury is close to that now and that supports views that the rebuild is close to or around its peak.

Three months before, MBIE was estimating that 37,0000 workers would be needed at peak but that dropped to 33,000 in the March report.

MBIE told Businessday it used CERA's (Canterbury Earthquake Recovery Authority) forecasts and a lot of those were obtained from estimates by insurance companies, construction companies and government bodies.

As construction work schedules were firmed up and more data became available, the projections were revised..

Ad Feedback

"So, as time passes, it can be more accurately estimated how much work is still left," MBIE said.

"It can now be seen that the rebuild is reaching its peak and growth is expected to continue at a slower pace," MBIE said.

Westpac said on Friday in an update on the Canterbury rebuild that "reconstruction spending appears to have reached a peak."

That meant it would not be the same boost to wider economic growth and employment as it had been - and eventually it would become a drag on the wider economy.

But at the moment Westpac still expected construction spending to remain "elevated for some time".

Westpac expects strong construction activity to continue for about another year before it starts to gradually wind down from mid 2016.

Westpac estimated about 40 per cent of planned spending was spent whereas ASB estimates about 33 per cent.

ASB said this week that it thought the rebuild was now around its peak using its tracking index, the Cantometer, which summarised activity over the past three years using employment, unemployment, construction, concrete usage, consents, wages, house sales, consumer spending and other data to build a picture of the rate of growth in Canterbury driven by the rebuild.

ASB chief economist Nick Tuffley said construction was levelling off rather than growing after a frenzied rush of building new subdivisions.

Migration into Canterbury for the rebuild remained strong though and retail had picked up again during the year.

Statistics Zealand data shows Canterbury has gained a net 6400 migrants in the 12 months to May and that has been an increasing number over several months. A good number are here to work in construction. A question is whether that will start to flatten and maybe fall over the coming year.

The rebuild peaked in the June quarter this year, according to Westpac chief economist Dominick Stephens.

"We were always in the camp of a rapid rebuild, and I think that's proved correct.The pace of work has peaked nine months earlier than I would have thought."

"We're right at the peak now and are looking at a plateau for the next year or so," Stephens said.

While residential building work was declining commercial work was ramping up - and they roughly balanced each other out. So rebuild growth would be flat.

The Canterbury rebuild had been contributing 0.2 to 0.4 percentage points per quarter to New Zealand GDP growth over the past two to three years.

"We think over the next year it will contribute zero, and from 2016 onwards it will be a major negative for growth."

That change in its assessment of how the rebuild was effecting the wider economy was a key part in Westpac's new call on interest rates dropping steeply, along with the severe downturn in dairy, Stephens said.

However Canterbury Employers' Chamber of Commerce chief executive Peter Townsend is more optimistic on how long the high level of rebuild activity will last.

He said the term "peak" was misleading, and spending would continue at its current high level for the next four to five years, not just one year or so.

"There's a misinterpretation of what's going on out there," Townsend said.

"It's fair to say that rebuild activity is peaking out, we're spending $100 million a week and we're not going to start spending $200 million a week - but we'll continue spending $100 million a week for the next four to five years," he said.

"To suggest we've reached a peak and are going to see a diminished spend in our economy is absolutely false," Townsend said.

"We've reached a plateau and will continue to spend enormous amounts of money into the next three to 5 years." 

"We are around 30-40 per cent through the rebuild and we have a long way to go," Townsend said.

At the coal face is Miles Construction owner Alastair Miles, Canterbury branch president of the Master Builders Association.

"Within Christchurch, rebuild-wise, yes we can't see it getting any bigger even if anchor projects come on line, and it's plateaued and potentially just slightly fallen."

"But it's the big $64m question, just how long will it continue for? "

He's hoping it will hold for another year or two at the high level.

There were projects that were proceeding to the planning stage then for one reason or another were being put on hold or binned. These were smaller commercial projects.

"It's hard to make a project stack and there's a limited number of tenants."

There was still intense competition for tendered work. And some people cashing out their insurance claims had not spent their money on a new house so that work might be still to come.

Builder Clive Barrington said the urban sprawl of subdivision development was slowing and there seemed to be more houses hanging around not sold.

He was busy but he understood others were not.

"It's become pretty obvious that the really small guys are struggling," Barrington said.

The easy Earthquake Commission repair work was drying up and the repairs happening now under insurers were the bigger and more complex jobs. Insurance companies were certainly going down the repair path more than they did initially.

Smaller builders were switching to working for larger ones on contract and they were struggling with the greater health and safety regulations.

Barrington agreed the building sector had as much work and spending at any one time as it was going to get.

While there still seemed a lot to be done, you only had to look at the centre of the city, that was a different ball game.

"You can't keep building buildings if you've got nobody to go in them."

The new buildings in Durham Street, Cashel Street Mall and Victoria Street were soaking up all the available tenants, he said.

The extent and duration of the central city rebuild is one of the uncertainties over how long the rebuild will last.

AT A GLANCE, June 2015

.About 31,000 workers in the construction sector

.A net 6400 migrants in Canterbury

.$100m a week rebuild spending

.About 30-40 per cent through the rebuild 

 - Stuff.co.nz

Ad Feedback
special offers
Ad Feedback