2 May 2017

High costs and worker shortage hit construction

10:19 pm on 2 May 2017

A sharp rise in building costs is driving an increasing number of property developers and construction companies to the wall, and the industry says an acute shortage of skilled workers is to blame.

Construction

Photo: RNZ

Auckland building company Point to Point Holdings was put into liquidation today, leaving 132 creditors $1.7 million out of pocket.

The company was building 30 homes across Auckland when it folded, blaming rising costs as a factor in its demise.

Point to Point liquidator Derek Ah Sam said it was becoming an all too common story and he deals with about a dozen cases a year.

"When we interview directors they blame the staff or rising costs, one factor is the business expands and they lose control and it causes a lot of rework. As soon as you get rework on a project, margins are eroded."

Residential building costs rose 6.7 percent nation-wide over the last year. In Auckland they rose 8 percent.

A shortage of tradespeople was also driving up wages, Infometrics economist Gareth Kiernan said.

"Sub-contractor costs have been rising substantially [due to] demand for tradespeople so they have been able to put their prices up significantly, and that is feeding through into higher building costs."

It was making fixed-price contracts unprofitable, while cooling house prices and tougher bank borrowing requirements were also squeezing margins, he said.

But Building Industry Federation chief executive Bruce Kohn said pressure on sub-contractors to accept work from developers, even before the design was finished and priced up, meant they bore the brunt of price rises.

"Business is booming on one hand but while there's plenty of work around, there's a large number of people competing for that. If you don't take it, the fellow down the road will. It's the downside of the boom," he said.

The country's biggest listed construction firm, Fletcher Building, was not immune to the headwinds.

In March, it warned its profit could be up to $150m less than forecast due to cost blow-outs on two major projects.

Commercial property investor Goodman Property Trust was also feeling the pinch.

Its chief executive, John Dakin, said the average cost of a warehouse per square metre in the last four years had increased 50 percent, and that was pushing up rents.

"We're seeing massive cost pressures and at this stage there doesn't seem to be any sign of relief on that front."

The Building and Construction Industry Training Organisation estimated the industry needed 64,648 new people over the next five years to meet growth and replace those that leave.

The number of people training for Level 4 qualifications was just 2342, less than half the 5689 needed to maintain current levels of qualification.

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