NZ construction sector upbeat on infrastructure work, buoyed by govt injection

Construction has been a major plank to the country's economic growth in recent years.

 New Zealand's construction sector is increasingly upbeat about the growing infrastructure market, which will get a boost from the government's planned $32.5 billion investment over the next four years, helping offset a gloomier buildings market as funding for residential development becomes harder to secure.

Aecom's annual survey of sentiment in the infrastructure and buildings construction sector shows a split between the two sub-sectors, with those on the infrastructure side expecting increased spending over the coming three years, with 68 percent of respondents seeing a positive investment outlook and nearly 70 percent expecting more work.

Those on the buildings side have pared back their optimism as building firms work out the impact of demand-side efforts by policymakers to rein in the housing market, with 32 percent anticipating increased investment, down from 68 percent in 2016, and 58 percent predicting a bigger workload in the coming year.

Finance Minister Steven Joyce, who launched the report in Auckland this morning, said the sector is still "positive" but is figuring out "how to handle that growth," which he characterises as being like the southeast Queensland boom.

Joyce said lending curbs by the Reserve Bank and trading banks' tighter credit criteria were "having a bit of an impact" on the buildings side, but were "probably assuring that the boom we're experiencing is going to be a bit more sustainable than in the past," when the building cycle was propped up by mezzanine finance and "more of a boom/bust thing".

Government figures showed the value of building work put in place fell in three months ended March 31 due to a sharp drop in non-residential construction, which weighed on economic activity in the quarter.

Still, construction has been a major plank to the country's economic growth in recent years as the Canterbury rebuild and Auckland house-building programme stir activity, accounting for 6.25 percent of the economy from 5 percent five years ago and employing 250,000 people compared to 180,000 in 2012.

Joyce said the pipeline of work and government investment means the sector will continue to be a core part of economic growth in coming years and that a lot of effort was going in to make sure the industry can build capacity to meet that demand.

The government has previously indicated it's keen on expanding its use of public private partnerships, however, respondents to the Aecom survey saw "them as less able to deliver value than other options" and that "there is a consensus amongst respondents that the industry's continued focus on lowest cost options will sacrifice quality and limit innovation and value-added aspects of a project," the report said.

That became apparent in Fletcher Building's recent review of its construction unit and prompted the country's biggest construction firm to write down the value of two major projects on the expectation they were facing mounting losses with escalating costs in fixed price contracts.

"Cost escalation, funding delays and broader capital constraints are impacting the financial viability of major private sector projects," the Aecom report said. "This could also be a key influence on the concern around business confidence, which continues to be identified as a key challenge."

(BusinessDesk)