New homes under threat from overstretched construction sector

While the unemployment rate has fallen to 4.7% it could have an outsized risk for new home building.

Wednesday, May 12th 2021, 6:03AM

Resources are short in the construction sector, putting the quality of new homes at risk.

Yet demand for new builds has soared and is soaring again as investors are incentivised to shift away from existing houses.

Independent economist Tony Alexander says throw in increasing government and council efforts to get more and more houses built and there is a problem that will crop up somewhere down the track – builders with little experience becoming involved in the sector because there are not enough qualified tradies.

“Quality, longevity, reputation, and restraint are going to increasingly count as measures of builder/developer success in the next five years.”

Adding to the construction sector’s productivity worries is an aging population renovating their homes to see them through retirement.

“Either people upgrade their houses to make a sale, or they move into a newly bought existing home and upgrade then,” says Alexander.

“Given the shortage now of tradespeople there will be some people getting their renovations planned during the pandemic lockdowns done through the remainder of this year into 2022.”

He says with investors looking at altering the way they manage their residential property investments in light of the Government’s rule changes, it is probable that a number will look to not just raise rents but justify the rent rises by lifting the fitout quality of their houses.

They will also avoid renting to people at the lower end of the socioeconomic spectrum.

“This is where the Government is highly likely to have a problem as a result of the continued hits they are delivering to residential property investors.

“There will be increasing pressure on Kāinga Ora to provide social housing over and above the underlying pressure which stems from the proportion of such homes sliding below 4% compared with an OECD average above 7%.

“There is some way to go before the Government provides an adequate number of social houses. It is also why new home construction will be strong over the next three to five years.”

Alexander says another interesting aspect of the change in investor rules might be some investors selling, young people buying their houses and moving out from their parents’ home.

“Parents often take this as an opportunity to modernise their home now that big lumps lying around the place staring at tiny screens are no longer contributing to wear and tear.”

Tags: construction housing market rental market Tony Alexander