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Canterbury rebuild - demand for occupational skills

Report No. 2, 22 September 2011

Summary

The Department of Labour (the Department) has again contacted major construction companies involved with the Canterbury rebuild to seek their views about the construction labour market. It was clear that the major issues noted in the Department’s July report were still current. Those issues were:

From the most recent contacts, companies pointed to additional concerns in certain key areas including:

Introduction

This report provides information given to the Department in September 2011 by major construction companies active in the Canterbury rebuild. It follows on from the Department’s first report prepared in July 2011. In this report a number of issues relating to labour market demand and supply are discussed. They include construction activity, insurance matters and rebuilding in the CBD. Connected with labour supply are workforce issues, accommodation, training and wage pressures.

Labour demand

Construction activity

Construction work is being carried out but, generally, it is moving ahead much more slowly than expected. Companies are involved in a range of activities:

The hesitation about when, and with what speed, construction work will gain momentum is making it very difficult for companies to plan. There was a burst of building activity some months ago but now that some urgent work has been completed, plans for workforce expansion have, for some companies, been put on hold. As a consequence, their timing for major rebuild work is being pushed out.

Residential

Without seismic stability companies are finding it hard to forecast when residential rebuild work will begin. One company contacted indicated that insurance assessment work is proceeding satisfactorily but that it is a major and complex undertaking. It doesn’t have a date to move into the repair and rebuilding phase.

CBD

There is still a great deal of uncertainty about the availability of commercial work in the CBD. The completion of the City Plan (to be presented to Government in December) will be a key milestone but even when it has been finalised, potential developers may still have concerns about starting construction.

Even when the City Plan is available and construction planning can get underway there will still be a lag of many months before designs are completed, consents are granted and tenants secured. It is also possible that tenants will want to wait and see the nature and speed of development and the location of other businesses before committing themselves to re-establishing their own businesses (or beginning new ones).

The nature and extent of the vertical build in the CBD is uncertain and because its size and location has major ramifications for the amount of associated infrastructural work required, companies in both the horizontal and vertical sections of the market find it difficult to prepare with confidence for the major challenges that they know they will face next year.

Timing uncertainties

Overall, there is significant uncertainty about when rebuild construction will take off. There is some work going on in the residential, green-field commercial construction and infrastructural sectors but the Canterbury market is still rather depressed. There is also concern that some construction businesses may find the flat level of construction activity hard to cope with. This may impact on employment in the sector.

In the Department’s first report the second quarter of 2012 was seen as a key period for the confluence of a number of issues. Clarity was expected in the infrastructural sector as Alliance planning was completed; assessment work in the residential sector would be substantially completed and residential building would be underway; and the central business district (CBD) commercial building situation would be clearer (with the finalisation of the City Plan).

Company comments suggest that this timing may still be appropriate for planning purposes but ongoing seismic activity has created doubts that this timetable will hold.

Insurance

Frustration with delays in resolving the insurance situation (for house and building owners) was a common theme running through the Department’s discussions with construction companies.

Generally, construction work is on hold until the insurance issue is resolved. There is uncertainty about both the availability and cost of insurance with insurance companies being unwilling to provide cover while seismic activities continue, at what was perceived by the construction industry to be “reasonable” prices.

Construction site insurance is a real concern for property owners. It was also the view of companies that there is no guarantee that owners will be able to insure a property when it is completed and potential cover may increase in cost – even if it is available – while the construction work is taking place.

Companies contend that much higher costs of insurance cover affect both the builders’ customers who have difficulty with availability and cost, and the builders themselves who cannot get insurance cover for their contracts without, it is claimed, “exorbitant” excesses or significant extra conditions being attached to the cover.

When seismic activity will calm down is difficult to forecast and the point was made that the insurance issue will not be resolved until at least six months after this activity abates.

Labour supply

Workforce expansion

Workforce expansion appears to be on hold until insurance matters have been resolved and it is not expected that there will be any significant movement for up to six months.

This is a real concern for companies because of the scale of work anticipated and the need to prepare for the expected rush of work towards the middle of next year. There is also concern that if the construction sector remains at a low ebb there will be an outflow of building workers with unemployed and under-employed workers being drawn to available work outside the Canterbury region or offshore

A positive factor is that labour supply was not put forward as a major current difficulty and there has been evidence of more workers becoming available in the residential and commercial sectors. To some companies there appeared to be more:

Specialist staff

There has been continuing activity in the project management/development sector of the market as companies are working to ensure that they have specialist staff (quantity surveyors, project and site managers) available for when construction work increases. Specialist staff members with these qualifications provide core functions for the major construction companies. Most are on longer-term or permanent contracts with a small number on short-term or temporary contracts.

One company told the Department that it had increased its specialist management staff in Christchurch from 30 people at the time of the first earthquake to 200 staff currently on the ground. It expects to hold steady at around 200 staff.

Subcontractors

Many of the major companies operate a business model whereby they provide construction management and rely on contracting their labour requirements from the sub-contractor market. Although there are no indications of large numbers of skilled workers leaving Christchurch there are concerns that the available labour pool will be drained fairly quickly once activity picks up.

It was apparent, however, that companies still feel unwilling or unable to tie up sub-contract construction labour until construction planning is much more certain.

Migrants

There has been interest from potential migrants, particularly in the highly skilled areas, e.g. quantity surveyors (and often from people without family commitments) in exploring work opportunities in Canterbury. The point was made that people from out of Christchurch are predominantly interested in temporary work rather than locating to Christchurch permanently and bringing reluctant families to the city.

One company has recruited management staff (and quantity surveyors) from the United Kingdom and Ireland, and attracted some 40 high calibre recruits (who are starting to arrive to participate in the rebuild). Further migrant recruitment by that company has been put on hold until the insurance situation becomes clearer.

Carpenters

A shortage of carpenters was mentioned, leading some to comment that they should be added to the skill shortage list. However, it was recognised that carpenters may not be in such short supply in other parts of the country – at least while New Zealand building activity remains at a low ebb.

Accommodation

Finding accommodation for migrants and other staff from outside Christchurch, has not been a significant problem to this point but concern was expressed that there is a looming problem that may hit on a number of fronts. These are:

Accommodation concerns will need to be monitored carefully over the next six to nine months in that a shortage of accommodation will be a significant disincentive for potential staff who may be considering moving to Christchurch.

Training

Apprentices

There has been some recruitment activity by one company that sees the value in employing apprentices and expanding training before the competition for apprentices intensifies. Other companies contacted however, are not looking to increase their apprentice numbers at this time.

The case was made that apprentices make a positive contribution to labour supply over the longer term. Given that there will be significant delays in getting building work going apprentices (particularly if they get their theory work “out of the way” in the first years of their apprenticeship) should be taken on now.

Satisfaction was expressed about working with the Building and Construction Industry Training Organisation (BCITO) on training matters. Most of the apprentices taken on recently have been sourced through the Christchurch Polytechnic Institute of Technology (CPIT).

Some companies mentioned their experiences in the 2004/05 construction boom period where apprentices gave up on completing their apprenticeships because they could get higher paid work as experienced building workers. The expense of investing in training was also commented upon. It was claimed that the incentive to make this investment was not strong as there was a significant expense in the first few years of training and a company is always at risk of losing staff to other companies that have not invested in training.

The quality of recruits coming into the building industry has also been questionable in the past and the construction companies said that it is too early to tell whether quality has improved since the earthquakes and the downturn in employment in other areas.

Customer relations skills

An interesting development relating to training was the insistence by one insurance company that the construction company associated with it pay particular attention to the quality of trainees and their customer relations skills i.e. for dealing with quake affected families. Relevant training is provided by this company using experienced staff and mentors in Christchurch who are providing training in the workplace.

Wage pressures

Companies commented that the significant jump in builders’ wages in the earlier part of this year is having an impact on building costs. It is also of some concern that wages will continue to rise as the market tightens and the available pool of labour is exhausted. A repeat (possibly a worsening) of the 2004/05 labour shortages and price increases is considered likely. Currently, wage levels are relatively steady although at a somewhat “artificially inflated rate”.

Future reporting

We had hoped to be able to report forecasts of labour occupational demand but company plans and hiring intentions are too uncertain to make for accurate reporting. One indication we had of future demand suggested that it will double over the next three months and double again in the following six months. In this company’s case the increased demand would be for both carpenters and building labourers. The company expects the main source of carpenter supply in the longer term will be from trained and experienced migrants.

We will continue to encourage companies to provide details of their labour market demand forecasts but until their work situation becomes clearer we expect a limited response to requests for detailed information.

The Department will ask companies for the next edition of this report (due early November) about their plans for accommodating additional workers in Canterbury and the extent to which they will rely on prefabrication, which could alter labour demand patterns (depending on scale).