Construction industry firms face two major concerns at the moment. Firstly, delays to building work due to capacity constraints and supply chain disruptions. Secondly, an increasing number of projects risk being cancelled as market conditions become less favourable for new developments, particularly in the residential space. Stats NZ has this week published some experimental data that explores both these issues and provides interesting benchmarks for the industry.

Chart 1 shows the difficulties being experienced in getting jobs underway, with current projects across the various construction types taking between 67% and 111% longer than normal to reach the milestone of their first inspection.

With the most recent quarterly data referring to consents issued in the December 2021 quarter, some of this apparent lift will be due to the seasonal effect of the summer holiday period on timeframes. Nevertheless, labour and skills shortages in the industry have been exacerbated by isolation requirements associated with the Omicron outbreak. These factors, combined with limited supplies of some materials, are clearly increasing the lag between consent and commencement.

The delays then mount up throughout the construction process. Chart 2 shows that, on average, final inspections are currently taking place between three weeks and 21 weeks later than normal, with the blowouts particularly pronounced for residential alterations and non-residential buildings.

At first glance, it appears that house builders are currently able to make up for lost time during the construction process, with the average delay to the final inspection 20 days shorter than the delay at the first inspection. However, caution needs to be taken with this data: the most recent estimate for the first inspection relates to consents issued in the December 2021 quarter, whereas the most recent estimate for the final inspection relates to consents issued in the March 2021 quarter. In fact, the time until the first inspection for house consents in the March 2021 quarter was just 52 days, implying that average timeframes for houses in that quarter have increased by about 3-4 weeks compared to normal as construction has progressed. Given current delays to projects getting started, we would expect to see the median number of days between consent and completion for houses push out towards a year for more recent projects.

Nevertheless, the modest additional delays during the house construction process look relatively favourable compared to the additional delays shown for attached dwellings, residential, alterations, and non-residential buildings.

For the sake of completeness, Chart 3 shows the timeframes between consent issuance and a code compliance certificate (CCC) being granted. Across all the residential construction types, the differences between the timeframes in Chart 2 and Chart 3 are fairly minor, meaning that our previous use of CCCs as an indication of the time until completion is reasonably valid. However, for non-residential and non-building construction, CCCs can take as much as 100-200 days longer to be issued after the final inspection, suggesting they are a less reliable indicator of completions for these building types.

The increased timeframes for building shown in the previous charts are not the most astounding ones in the figures published by Stats NZ. The data release also includes estimates of the upper quartile for each of the measures shown above, or when 75% of consents have reached the first inspection or final inspection or been issued with a CCC. It’s this “tail” of projects where some of the timeframes have really ballooned.

Chart 4 effectively shows that 25% of residential alterations, non-residential projects, or non-building construction are now taking over 300 days after consent to reach their first inspection. Chart 5 shows that things don’t get any better throughout the building process, with the last 25% of residential alterations and non-residential consents pushing up towards 1,000 days from consent until final inspection. For residential alterations, the upper quartile result of 989 days relates to consents issued in the June 2019 quarter, and subsequent additional delays could see this figure push up towards 1,100 days or beyond. Given the two-year deadline1 for building work to be completed after a consent is issued, these timeframes are incredible, and indicate just how difficult it is to get builders and tradespeople to taken on alterations and additions work at the moment.

The final set of data published by Stats NZ estimated the proportion of consents reaching their first inspection, final inspection, or CCC. Chart 6 shows the proportions of each consent type reaching its final inspection as a measure of the completion rate for construction projects.

The data in Chart 6 only runs up until consents issued in the March 2019 quarter, with Stats NZ noting that estimates for subsequent quarters will be lower because projects are still underway. Indeed, given the extended timeframes for completing projects at the moment, it is possible that the figures in the last few quarters for the graph are being dragged lower by work associated with consents that is still being finished off.

Nevertheless, the data gives us an interesting insight into completion rates. Firstly, the average rate of completion appears to be lower than we might have expected, ranging from about 93% for houses down to about 80% for non-building construction. Data shows that there were 374,951 new dwelling consents issued between January 2006 and December 2020 which, at a 92.4% completion rate, would imply 346,526 new homes added to the dwelling stock. Allowing for an average lag between consent and completion of 4-5 months, we can also see that Stats NZ’s estimate of the dwelling stock increased by 338,900 dwellings between March 2007 and March 2022. The gap between these two figures allows scope for some demolitions, but not many: just 7,626 dwellings, or a little over 500pa (just 0.03% of the dwelling stock per year).

Secondly, the completion rates vary as we might expect throughout the economic cycle. The Global Financial Crisis in 2008/09 saw house completion rates slip as low as 83%, with completion rates for attached dwellings getting as low as 79%. In contrast completion rates tend to be highest during the early stages of an upturn, when speculative building is relatively rare. For example, the completion rate for houses was at its highest in December 2012, when consent numbers were only about 60% of their current level.

Finally, new residential construction has the highest completion rates on average, with the rate for standalone houses higher than attached dwellings. The sunk costs associated with getting a new house to the consent stage are likely to represent a much greater proportion of the overall project than for a multi-unit residential development or a non-residential building. Furthermore, decision-making around the latter two building types is likely to be much more business-minded and subject to changing economic conditions than someone having a house built especially for them.

The relatively low completion rates for residential alterations and non-building construction reflect the relatively low average values for these types of projects, with average consent values over the last year of $82,700 and $138,500 respectively. Beneath this average value, there is also likely to be a wide distribution of project sizes. Although we don’t have evidence to back it up, we suspect that the consented projects less likely to be completed will be, on average, ones with a relatively low value.

1 Extensions to this deadline can be applied for.