Some construction suppliers are ‘jumping on the gravy train’ – and builders say they won’t forget. Jonathan Milne reports.
Big Hawkes Bay building company TW Group had 13 newbuilt homes sitting empty, on the day that Cyclone Gabrielle hit. As grey light dawned on the devastation, the company opened them up to families left homeless by the floods.
Among them were some of its own workers. One family of seven lost their home; despite the trauma, the dad wanted to continue helping the community.
“He’s been keen to continue to work for us, but look out for his family – so it’s really lucky there’s a home with enough space for them,” says TW Trades chief executive Jamie Webster. “Now he’s going to go away to work on the roads around Wairoa, as part of our support team.”
The Cyclone Gabrielle search and rescue operation is still in full swing in Hawkes Bay and Tairāwhiti. Yet it would be naive, says housing firm owner Jason Svensson, not to be considering the rebuild now. “It’s a pretty significant event that we’ve got to start preparing for – it’s at the forefront of a lot of people’s minds.”
Tradies and other construction workers are all pulling together in their communities, he says, however hard-hit their own families are. “Some of these guys have lost everything themselves but that just goes to show the good old Kiwi nature, I guess, of coming out and everyone helping each other out. No one’s really had too much of a chance to stop and reevaluate their own position just yet.”
Jason and Vikki Svensson own a Hawkes Bay construction firm, the Jennian Homes franchise. They keep about 50 staff and contractors employed full-time.
“There’s probably going to be some challenges. We’re not so naive to think there won’t be. But the industry has learnt shitloads, post-Covid, and just how badly we got caught short.”
– Jason Svensson, Jennian Homes
Insurance payouts won’t touch the sides of this rebuild, he warns. Somebody who built and insured a new home for $600,000 three years ago will now find themselves paying at least $750,000 to rebuild. Construction costs have gone up that fast – and those rises are now set to continue.
Hopes that a downturn in residential building consents would take the heat out of a racing construction costs index have been dashed by the Auckland floods and Cyclone Gabrielle.
Reserve Bank Governor Adrian Orr delivered the monetary policy statement this week. He says that in the near-term, the storms will add 0.3 percent to inflation this quarter, and another 0.3 percent next quarter. Over time, the infrastructure and community rebuild will add to inflationary pressures, especially given existing capacity constraints in the economy.
Domestic inflation drivers like house construction overtake traded goods
Newsroom spoke with the operators of smaller building companies, who were extremely concerned that without scale, they would struggle to get key supplies like timber and Gib. But bigger companies were more confident about their supply chains.
"I have it on pretty good authority, without naming names or suppliers or anything like that, but we have been assured that we probably are in a pretty good position to cope," says Svensson.
Big Hawkes Bay builders like TW Trades and Jennian have sought and obtained assurances from major suppliers like Fletcher that it will be able to deliver the timber, concrete, steel and Gib plasterboard they need, despite an inevitable surge in demand.
Their answer is yes (Webster predicts a "glut") but it will come at a price.
"Supply will be okay," says Webster. "It will be available, it will be accessible. But it's not like it's going to be cheap."
Winstone Wallboards, whose Gib product controversially controls 96 percent of the plasterboard market, hiked its prices by 15.4 percent this month – just after the Auckland floods and before Gabrielle hit.
That increase had been notified three months in advance, but the company isn't inclined to reverse it out of sympathy for cyclone victims."The costs to manufacture don’t go down because there has been a cyclone," a Fletcher spokesperson says.
Before this month's increase, Winstone had held its prices for 16 months, while inflationary pressures and a weakening New Zealand dollar had driven up the price the company paid for gypsum and energy by more than 25 percent.
"If you follow the logic that Winstone Wallboards should drop prices because of the cyclone, surely you’d have to ask anyone producing a commodity to lower their prices as well," she adds. "We don’t expect any major challenge on product capacity as demand increases eventuate. We will do what we can to support the region which started with $250,000 to the Red Cross last week."
"Damage to property will require resources from the construction sector to repair and rebuild, adding to the existing pipeline of construction work. Any payouts from insurers will likely take some time to be made and it will take even longer for construction work to start."
– Reserve Bank
Svensson says prices have gone up for every building product. "I would hate to speculate, but you've certainly got to wonder if some of these guys are sort of jumping on the gravy train a little bit as well. Which is frustrating. You sort of wonder where these price rises have come from."
"We're talking roofing all the way through to the steel that we put in our concrete floors. We've experienced an increase in just about every single product that we put into our houses. That's certainly tough for our clients to suck up, and that's only gonna increase, unfortunately.
He's pleading with suppliers to avoid the temptation to profiteer off the crisis. "There's gonna be a lot of hurt out there. So, you know, whatever you can do to ease that as much as possible will be greatly accepted and appreciated. It just means that people are going to be able to replace what they had."
Svensson expects there to be a delay in beginning the rebuild, as insurance companies approve claims, and the Government and councils confirm if and when and where people can build their homes again. That delay will allow suppliers like Winstone Wallboards, which is opening a big new Gib factory in Tauranga in May, to ramp up supply.
"Realistically, it's gonna take a little while for all this stuff to filter through before we actually start repairing anyway," Svensson says. "So yeah, I think there is plenty of stock on hand at the moment, but there's probably going to be some challenges. We're not so naive to think there won't be. But the industry has learnt shitloads, post-Covid, and just how badly we got caught short."
Construction costs to rise
It's not just builders like Svensson and Webster who are girding their toolbelts for price rises.
The Reserve Bank is building those cost increases into its economic projections; those increases are a factor in the monetary policy committee's decision this week to push ahead with a 0.5 percentage point increase to the official cash rate.
"The recent severe storms over much of the North Island have had a devastating impact on the lives of many New Zealanders, and led to considerable economic losses," the committee says in its statement.
"A lot of us have got pretty good memories and when things get back to normal and things slow down, we won't be knocking on these companies' doors – because they have just rorted the system."
– Jason Svensson, Jennian Homes
"While it is too early to confidently estimate the likely impacts of these events on economic activity, the recovery will be taking place at a time when labour and materials are already scarce. As a result, the recovery from these events is expected to lead to an increase in inflation over the next few months. This is expected to occur via higher fruit, vegetable, construction and used car prices in particular.
"Damage to property will require resources from the construction sector to repair and rebuild, adding to the existing pipeline of construction work."
That highlights another challenge: Webster and Svensson say they will need workforce to deliver the rebuild.
TW Trades employs builders and tradies from the UK, Fiji and Australia who first came to New Zealand to work on the Christchurch earthquake rebuild. They eventually spread out around the country, and Webster says his company is a lucky beneficiary of that. "We'll definitely be supporting the cause of actually getting more good quality workers across the border, that's for sure."
And Svensson adds the H1 building codes to the list of challenges – he says some aspects have been delayed, but it's still a struggle for companies to get their heads around the changes, at a time like this.
Finally, dealing with insurance companies will create delays that will be difficult to plan for.
That's something that's echoed by the Reserve Bank.
"Any payouts from insurers will likely take some time to be made and it will take even longer for construction work to start," the monetary policy committee says. "Insurance costs will provide an initial indication of the extent of the impacts on medium-term economic activity. However, the effects on economic activity will likely be larger than the insurance costs due to the damage to uninsured or underinsured assets....
"Repairs and rebuilding activity following the severe storms over much of the North Island will likely lead to upward pressure on construction cost inflation, particularly in the near term."
And long term? Svensson issues a warning to any suppliers who may be tempted to make hay while the rain comes down in Hawkes Bay and Tairāwhiti. "A lot of us have got pretty good memories and when things get back to normal and things slow down, we won't be knocking knocking on these companies' doors – because they have just rorted the system."