Developers selling houses 'close to cost' as building downturn bites

House builders are focusing more on generating cashflow than profit, as many struggle to stay in business.

"From conversations I'm having across the industry, I know of builders and developers who are selling completed townhouses at, or very close to cost, simply to free-up capital and keep their businesses moving," CBS Co-operative chief executive Carl Taylor said.

"That's not a sign of a healthy market. It's a sign that cash flow has become more important than profit."

Taylor said the co-op had been around for about a decade and offered its 2200 members lower cost building products.

It also advocated for the industry which was experiencing the worst downturn since 2015, excluding the Covid shutdown.

However, he said the downturn in building activity was among the [https://www.rnz.co.nz/news/business/703932/inside-new-zealand-s-shrinking-building-and-construction-industry

pressures facing the construction sector], but didn't tell the full story.

Taylor said the feedback from the coalface suggested the market was still under significant pressure despite an upturn in building consents.

He said in Canterbury and Otago was "humming" with a record number of building consents, but it wasn't translating into profitability, with little work around.

"There's still a smaller pool of work. So the guys are competing for that smaller pool by lowering their margins, lowering their labour, and lowering their total profitability and trying to win work.

"We're seeing a lot of guys that are working for nothing. Some of the developers I've spoken to have said to me that they're selling their houses at cost just to get them through to get them moving on to the next project, and that happens in that boom bust cycle."

He said the short pipeline of work indicated a vacuum was being created which could put subsequent upward pressure on prices and rents.

In addition, Taylor said the introduction of a [https://www.rnz.co.nz/news/business/642807/builders-fear-new-home-warranty-rules-will-price-them-out-of-market

home warranty policy] would further test the resilience of the industry.

"Government has signalled important reform, including the move toward proportionate liability. That direction is welcome. But builders operate on certainty, not announcements."

What builders want

Taylor said the upcoming general election offered an opportunity to reset the system builders were struggling with.

CBS Co-op's recommendations were intended to address "widespread frustration among builders over inconsistent, inefficient, and delayed consenting processes" with members calling for urgent reform as follows:

Fix consenting so it is accountable and consistent.

Align liability with responsibility with reasonable consenting processes, practical and tech-savvy inspections, quality workmanship, and a system where risk is proportional to responsibility.

Avoid layering new costs that undermine affordability. New Zealand's building costs are among the highest in the world, and as a nation of innovators, we can do better.

Deliver productivity that actually reduces time and expense, including measures to address such things as traffic bottlenecks, deliver a universal online consenting system for all councils, and consistency in how councils handle on-site amendments.

"If we get the settings right, New Zealand can build faster, better, and more affordably," Taylor said.