A watch and wait game

There has been a necessary correction in the price of properties and the market has temporarily flattened. This tends to happen every 10 years or so. We’re simply going through yet another cycle.

Everyone is waiting for the property market to take off again. First, people were waiting to find out who would be in government. Would it be a continuation of the status quo or a coalition that represented potentially big changes? The kind of changes that might include a capital gains tax and death duties further down the track.

Now people are waiting to see if the market will be any different after Christmas.

The Chinese are out of the market. So the only active buyers at present seem to be first-home buyers and investors. And there’s still a serious shortage of good housing stock. Why would people sell now unless their circumstances gave them no alternative? There’s not much out there for them to buy.

Where previously there was an average of 550-600 sales per month on the North Shore, this has recently fallen to 280 sales per month, representing a significant drop. There are 65 real estate offices on the North Shore with around 1200 salespeople. This represents an average of 4.2 sales per office per month on the Shore. There are also few auctions and of those many houses fail to sell.

I also have a feeling that once the new government encounters the realities of the current construction industry it might prompt a rethink of the number of houses it can construct. I recognise their idealism and respect their goal, but do they realise that increasing New Zealand’s housing stock by 100,000 homes over the next decade is, sadly, unrealistic? Here’s why. The factors holding us back that I’ve been banging on about for months remain:

  • Building delays resulting from a chronic shortage of qualified and skilled tradespeople and engineers.
  • Further delays caused by a serious shortage of quality construction materials, plus cost-cutting, leading to substandard and non-compliant materials such as low-quality steel mesh being used in concrete slab reinforcement.
  • Materials shortages have resulted in increases in materials costs blowing out construction budget forecasts.
  • Delays caused by inefficiencies and slowness in processing building and resource consents and issuing codes of compliance certificates by a stretched Auckland Council. This includes increased costs of consents, lack of clarity around procedures and requirements and differences of opinion in Building Code interpretation among council staff.
  • The time it’s taking to get approval to undertake building and remediation of the identified leaky houses and apartments to a higher building code standard.
  • The number of leaky homes still being identified today.
  • The number of leaky homes yet to be identified in the next few years.
  • The low quality of building by cost-cutting, inexperienced and opportunistic builders or untrained foreign labourers imported on temporary work permits, who don’t understand or comply with the NZ Building Code and who use low-quality materials and building short cuts.
  • Cowboys with fake papers passing themselves off Licensed Building Practitioners.
  • Builders without good business skills operating on margins that are too tight and suffering cashflow issues and going bust.
  • The consequences over the next ten years as sub-standard buildings that are currently being built or have been recently constructed develop major structural issues – a future crisis that could potentially eclipse the multi-billion dollar leaky-building scandal.
  • The understandably wary attitude of banks to providing loans to developers of large high-risk multi-unit buildings.

What are the solutions?

One would be for Standards NZ to be resourced to the level required to place greater restrictions on the quantity of low-quality building materials being imported from China by the container load. When materials are short it’s only too easy for construction companies to buy non-compliant products from Ali Baba, a Chinese trading website.

Another solution would be to privatise the building consent system and remove it from a council that has clearly demonstrated it’s not up to the job.

A third solution would be to consider an immigration policy change specifically for Auckland and to to bring in more experienced, qualified tradespeople, particularly from the UK, Canada, Australia and elsewhere.

A fourth could be an effective government-backed building insurance scheme.

If you need any evidence of the sub-standard construction going on in Auckland, consider this: it was reported in 2016 that the Auckland Council was carrying out 900 inspections daily and one third were failing their building inspections. Horrifying.

What next? Who knows where we’re heading. My crystal ball is in a holding position.