Morden’s Mid-year Forecast for the Construction Industry
Much has been written about the state of the construction industry. Dave Morris and Phil Hebden from Morden have made eight predictions about what we can expect for the remainder of 2023.
1. The labour market will continue to be tight:
Labour will continue to be a problem. As we predicted at the beginning of the year, we’re also now beginning to see funding become problematic for those who cannot self-fund their own construction projects.
2. Costs will plateau:
On the plus side, rising costs are coming to an end with things now plateauing out.The war in Ukraine has had its impact on prices; the spike in the cost of moving freight around the country has already occurred. These and other factors all contribute to the plateau we are starting to see now on rising costs for the construction industry. Infometrics has also reported that inflation is going to start to steady out now, however we will have to wait to be certain about that.
3. The number of building consents will be steady:
The number of consents in the market, although not as high as it was immediately post-covid, is still fairly steady, as we predicted back in January, when plenty of consents still in the pipeline. Construction of residential housing is continuing at a good pace, with the emergence of low-rise high-density developments on the rise. Although these developments don’t increase the number of consents, they do increase the number of units per consent. So, while the number of consents might be starting to decline, the number of units being built is still high.
4. Infrastructure projects are likely to grow:
With regard to infrastructure and vertical construction vs horizontal construction, the vertical market is continuing to grow and the Government is budgeting a tremendous amount for increased infrastructure works for the next five years or more.
5. Timelines will be under pressure:
A current issue that has surfaced and is becoming more common is with projects being delayed. The causal factors are varied. There is a certain amount of nervousness and uncertainty from private developers, as well as the hoops that people have to jump through in order to access funding. This all has an impact.
Banks are asking for far more security than they have in the past which is also slowing things down. The time it takes to get consents hasn’t sped up in any way. It has always been a problem.
The fact is projects are out there in the market, but they are not commencing on site. This also adds to the overall uncertainty of the pipeline.
6. Forward workload will need constant attention:
The majority of builders in the marketplace have security for the next 12-18 months, however the smaller construction firms are reporting less forward workload due to families being either unable to obtain funds, or they are nervous about beginning extensions or modifications to their properties. This is a particular area of work typically done by smaller building companies, who are either doing individual spec houses for people or they’re doing modifications to existing houses. Due to another issue: the rise in interest rates, people aren’t borrowing the money so this work is not occurring. So what we’re seeing in effect is a reduction in smaller projects for private individuals and home owners.
7. Cash will be king:
A solid business strategy including robust business planning ensures these smaller businesses are in a strong cash position. This is key to their survival. Companies that use the next project to fund their current project are putting themselves in an exceedingly dangerous and risky position. It’s going to become more and more important to have a strong ‘cash in the bank’ position for small businesses so they can pay in order to keep operating, as they may not have another job coming so soon.
8. Wider socioeconomic benefits will be crucial:
ESG (Environmental, Social and Governance) factors are becoming more and more in the spotlight, with broader outcomes such as diversity, Maori and Pasifika businesses, the use of local businesses, operating in a sustainable manner, all increasingly important to government. These outcomes include giving back to communities and projects that bring socioeconomic benefit for the areas where they are taking place. Regardless of funding, these types of projects will continue. At Morden, we have an ESG policy.
The Morden Way
Growth is likely to occur in the construction industry over the next six months – and certainly in the major cities: Wellington, Auckland, Hamilton, Christchurch. The number of tower cranes in the sky above Wellington is still high and these cranes are not coming down any time soon. Now more than ever, it makes strong business sense to work with Morden on your next construction project. If you would like to discuss how Morden can bring consultancy smarts and practical hands-on construction experience to your next construction project, get in touch with us today.
Call 04 210 0340 or email info@morden.co.nz with some background information on your project.
Let’s work together.
