Building and Construction

Budget 2013 and the building construction sector

Friday May 17, 2013 Fiona Stokes

 

The Minister of Finance, Hon Bill English, announced in Budget 2013 that $7.2 million will be spent over four years on housing accords. The first accord has already been agreed with Auckland Council, and special housing areas are expected to be designated later this year. Legislation regarding housing accords will apply for three years, with the Ministry of Business, Innovation and Employment (MBIE) leading this initiative. This legislation allows special housing areas to be designated under accords between the Government and councils.  Council approval for new housing in these areas will be managed under a streamlined process (yet to be revealed). Overall, however, this legislation is touted as improving housing affordability, and creating flexible regulatory tools for councils to use in areas where housing is least affordable.

 

A question was put to the Minister of Finance during a Q&A session at the Budget release, regarding who will build the new houses in Auckland that are part of the housing accord.  He replied that the building construction sector has demonstrated that over time it can shrink and expand its resource base fairly rapidly, and that five to seven years of strong construction activity due to housing accords and the Christchurch rebuild is an excellent opportunity to “re-launch people back into the workforce.”

 

The Minister of Finance then went on to explain that there is going to be positive pressure in this sector, with more jobs than people to fill these jobs. “People are worried about whether the Government is acting to create jobs; this is an active step taken by Government to generate thousands of jobs.” Emphasising that it is not just one thing that builds momentum, the Minister also listed various steps that the Government is actively taking or has in place. This list included skills training, welfare reforms that help people into the workforce, and the careful consideration of offshore labour.

 

Does this mean that modest, targeted spending increases in Budget 2013 could result in an increase in employment opportunities in the building construction sector? 

The Minister of Finance believes so, and argues that the Household Labour Force Survey and Treasury forecasts indicate that the outlook for new jobs is promising, and that the positive momentum for jobs is likely to continue for the next few years. In the March 2013 quarter, the Household Labour Force Survey indicated that the unemployment rate was 6.5 percent, meaning that 2.2 million people are in employment. Bringing those figures back to focus on building construction, between the March quarter 2012 and the March quarter 2013, the number of technicians and trades workers employed declined by 7,500 while the number of labourers declined by 23,100.

 

Not all of these people are employed in the building construction sector, but during the same period the number of people employed in building construction declined by 2,900. 

Any turn around in employment opportunities, not to mention an increase in building activity (as measured by us through consents and work in place) would be welcome, as indicated by the two figures below.

 

 

The Treasury forecasts referred to earlier indicate that the labour force participation rate will increase from 67.7% in 2013 to 68.4% in 2018, while the number of people in employment will grow from 2.2 million to 2.4 million by 2018. This means that the unemployment rate will also track down, from a high of 7.0% in 2013 to 5.0% by 2018.

 

While I do not necessarily believe that there will be more jobs than people to do the jobs in the building construction sector over the next five years, it is worth noting two areas of the Budget announcements that may increase activity for this sector.

 

The Social Housing Reform Bill may also create opportunities for this sector, with $100m allocated to the three-year insulation programme that we are all familiar with, and the introduction of new Housing Warrant of Fitness’s. These WOFs build on existing housing standards work, and could be part of what the Minister of Finance terms, shifting our approach to welfare to one of an investment approach. The WOFs will apply firstly to 69,000 Housing New Zealand properties.

 

The allocation of new capital from the Future Investment Fund to the Christchurch rebuild further indicates the employment opportunities in non-residential construction that could be available. In particular, the $426m to be spent on the redevelopment of Christchurch and Burwood hospitals; the $50m to be spent on school network upgrades; and the $700m contingency fund for key projects such as building new schools, Christchurch’s new justice and emergency services precinct, and supporting Christchurch tertiary providers.

Modest, targeted spending increases that build momentum – and hopefully a few houses and a new super city.