New Zealand construction faces challenging times

26/08/2021

The New Zealand construction sector may need to carefully plan ahead as the pandemic continues to challenge firms that are at risk of failure, according to a recent RNZ news report.

Business advisory firm, BDO‘s, annual construction sector report recently found that product shortages and significant pressures from higher material costs and wages were causing the construction industry to struggle.

BDO Construction and Real Estate Sector National Leader, James MacQueen said with these factors combined, the sector is heading into very challenging times.

“Construction businesses that anticipated, planned and negotiated contracts for these challenges should perform well,” Mr MacQueen said.

However, this could still see the collapse of firms operating on thin margins which would compound the challenges, he said.

Supply chain disruptions that restricted the availability of certain products were now the biggest single contributor to construction delays over the last 12 months, according to the report, with than half of firms reporting they could not receive key materials including steel, timber and plywood when required.

Competition for building products saw 70 per cent of firms reporting their margins had been eroded by the increased cost of materials, according to the report, with the industry also desperately short of labour, with less than 40 per cent of firms saying staff to meet their needs.

Border closures and immigration restrictions also meant many overseas workers had returned home or could not enter the country to fill gaps.

“Not only is the industry short of skilled staff, but over the next 10 years it will lose the experienced leadership across nearly 70 percent of the organisations in it,” according to the BDO report.

That loss of experience in an industry with high risks, low margins and dramatic work cycles is likely to increase the number of weaker businesses without the ability to manage shocks, according to the report.

The report said a rethink was required to encourage the upskilling of staff, develop new approaches to procure materials and change how contracts were negotiated and priced, so businesses took inflation into account.