Canterbury rebuild - demand for occupational skills
Report No. 3, 12 December 2011
In the Department of Labour’s (the Department) most recent contacts with construction companies involved with the Canterbury Rebuild, it was evident that there was very little change in the level of construction activity since September. The most prominent issues mentioned to the Department were:
- Companies have a reasonable flow of work but are unable to prepare properly for the expected rush of work later in 2012
- Companies had thought that the major buildup of work would start in the second quarter of 2012, but now expect the start to be delayed into the third quarter
- Many projects could be started if insurance was available. It was thought there may be some movement by insurance companies in February/March 2012 but no certainty of this happening
- Demolition, some new commercial building, residential and infrastructure repair work, is being carried out
- There are few concerns about labour availability at the moment. Companies have been hiring specialist staff from the United Kingdom and Ireland
- Although accommodation is currently available there is real concern for the future when it is expected that demand will significantly outstrip supply
- Companies are hoping that the Christchurch CBD Plan will clarify the nature and function of the CBD. Building costs may make it uneconomic for many previous tenants to return to the CBD
- The building consent process is being administered effectively by the Christchurch City Council but the likely volume of work later in 2012 will put the system under considerable pressure
- Immigration processing is efficient and companies are pleased with the service they have received to date. They would like Immigration New Zealand to clarify how the anticipated volume of applications is going to be handled when labour demand picks up.
This report provides information given to the Department in November 2011 by major construction companies active in the Canterbury rebuild. Earlier reports in this series were completed in July and September 2011. The major issues covered by construction companies included construction activity, insurance matters, accommodation, migration, apprenticeship and training activity, labour supply and rebuilding (both residential and commercial buildings).
There appears to have been very little change in the level of construction activity since the Department’s most recent report in September. Companies appear to be marking time with a reasonable flow of work including “business as usual” but virtually no opportunities to build up their capacity to meet the extensive challenges they know they will be facing in the next six to nine months (and beyond).
The general feeling was that business activity is “steady”. The companies involved in property assessments have good and reliable work but the very low level of activity in residential construction is proving to be a major source of frustration. The Department was told that there are many projects that could be started if insurance was available for both contract work and for finished buildings. These included design and build projects, residential buildings (“hundreds”), some school reconstruction and multi-story commercial buildings.
Companies commented that:
- Demolition work is well underway and this work will continue for another year. This work has most commonly involved the clearing of large quantities of rubble and building materials in a relatively unsophisticated manner
- “Deconstruction” (for example, taking apart high rise buildings), which involves greater skill and experience on the part of those involved, is only proceeding slowly. A number of the construction companies contacted have formed joint ventures with specialized demolition companies from within New Zealand and overseas. It was said that the large and specialized demolition companies “needed more work” at the moment and that their capacity was not being utilized appropriately
- Work, although not extensive, was being carried out in the commercial sector as some insurance payments are being released. Companies that had been actively involved in the commercial construction sector before the earthquakes, are engaged in commercial building work (as business-as-usual) in areas of Christchurch that are suitable for building in
- There is continuing activity in residential repair
- Repair work is being carried out on infrastructure but the “high quality” infrastructural construction and rehabilitation work is not expected to start for a few months.
As the Department commented in its last report, companies are finding it very difficult to plan ahead. They “all know what the scale of the challenge is” as they are all accessing the same data (CDC information and the DoL/CDC modeling). There is, however, some skepticism about the assumptions being used in the forecasts and the feeling that the scope of the rebuild work may be understated. This uncertainty and the ongoing problems with insurance make company construction planning and workforce development very difficult.
In our earlier conversations with construction companies we had been told, with some consistency, that the confluence of a number of developments: start of residential rebuilding; the firming up of Alliance infrastructural planning; and a start, albeit slow, to commercial reconstruction; suggested that the rapid ramping up of building activity and labour demand made the second quarter of 2012 a crucial period for the start of the major rebuild activity.
We are now being told that this timing has to be pushed out by a further three months, at least, into the third quarter of 2012. The major reason for this is the ongoing uncertainties about insurance availability, itself a consequence of uncertainty about seismic stability In May this year GNS suggested that there was a probability of 23% that a level 6 or 7 earthquake would occur by the middle of 2012. Using a different modeling methodology GNS now consider that there is a 15% probability that a level 6 to 6.4 earthquake will occur by November 2012. These forecasts demonstrate the uncertainty surrounding possible seismic activity and the business risks that insurance companies will be factoring into their planning.
Any further major delays in construction activity will have a number of impacts in the region:
- Continuing difficulties for smaller construction or subcontracting companies that are having to “buy work” with low-bid pricing
- Companies that had geared up for early work will have to carry staff – and associated risks – for longer than they had planned
- Skilled workers may get fed up and leave the area (this is happening but at a relatively low level at the moment)
- Canterbury businesses, workers and the general public will not receive a much needed financial stimulus in the near future.
Companies have indicated that the key to unlock construction activity in Canterbury is seismic stability and the subsequent resolution of the insurance issues that have frustrated, to this point, all those connected with the rebuild. is the companies find it very hard to carry out workforce planning without having a clear starting date for construction to begin. The threat of significant seismic activity makes it impossible for developers, owners and construction companies to get appropriate and affordable insurance cover.
The insurance issues are multifaceted. They include:
- Availability – with the difficulties insurance companies are having getting reinsurance cover, insurers are unwilling or unable to offer cover for construction sites and completed buildings
- Cost – the cost of cover and the size of the owner’s excess have risen to such a level that they may prevent homeowners and developers taking out insurance cover. We were given an example of an insurance quotation for a residential project which included the premium rising by 100% over that previously experienced with an excess of $60,000 in the policy being offered
- Construction being blocked – one company could work on school construction if cover was available for the construction and building. In another example, design and build work is ready to start and part funding has been secured for the projects, but the relevant bank will not release the remaining funding until insurance cover is obtained
- Building Code issues –buildings are not yet required (by law) to be able to reach at least 67% of the Building Code but this level is being required by the Christchurch City Council. This uncertainty about Code-related levels adds to the difficulties being experienced with insurance cover
- Risk – with an excess being demanded of at least 10% of the cost of a project, developers and owners cannot afford to carry that amount of risk (e.g. on a $10m project the uncovered risk would be $1m). They are, therefore, forced to try and find another insurer to cover the 10% risk. This becomes very expensive proposition
- Container Mall – one company associated with the building of the Mall commented on how successful a project it has been but noted that tenants couldn’t get insurance at the moment
- Timing – there was a suggestion that insurance companies might get back into the market in the first quarter of next year (assuming there is no major seismic activity). Even if only one company decides to make a move it was thought probable that other companies would follow suit
- Government participation – if the insurance companies fail to offer cover in the short to medium term some firms suggested that the Government would have to become involved in some way (perhaps in an underwriting capacity)
- Capital flight – the extremely high cost of insurance (even if it was available) will, inevitably, have an impact on the overall economics of a property development. This could be sufficient to deter a property developer or investor from reinvesting in the Canterbury area (particularly in the commercial sector). Investment in other parts of New Zealand could provide better or more secure terms.
Companies have built up their workforces to meet the amount and type of work they have on hand. They have been employing specialist staff, for example quantity surveyors, site and project managers, but they have not made any particularly significant moves towards securing the large numbers of staff that they think will be required from late 2012.
There were few concerns about labour availability at the moment. Carpenters seem to be available but the same couldn’t be said about workers in the finishing trades (painters and plasterers were mentioned). In that there was still available capacity at the trades level, subcontractors were still working on relatively small margins and pricing quite keenly.
A number of new subcontracting companies have been appearing in Christchurch or have been contacting the major companies to establish their capabilities and to get a presence in the market. These subcontracting companies have been from all around New Zealand.
Other aspects of labour supply mentioned by companies included:
- Using labour agents for securing casual staff (the agents have staff, often from overseas on their books and available for hire). This would normally be a good source of casual labour but the last few weeks have seen an apparent reduction in supply
- Companies are still securing staff through Work and Income. It was commented that Work and Income doesn’t usually have skilled staff such as carpenters on its books but is a good source of administrative staff
- Some workers have been recruited from military training courses. A number of these who have demonstrated a good attitude and enthusiasm for working in the construction area have been offered apprenticeships
- The completion of basic demolition work towards the end of 2012 should free up labour for employment in other construction work. This should also be the case for other areas of the rebuild with labour moving from areas where work is completed or slowing, to higher activity parts of the sector. It is expected that residential work will tail off after a three-year peak period from 2013
- The five Alliance companies are recruiting as they gear up for increased amounts of infrastructural work (each will be allocated a 20% “package” of the planned infrastructural work). Although these companies will need their own management staff for the crews they will have to deploy in the region, they will be encouraged to subcontract much (around 80%) of their allocated work
- Major companies that are also active in the Australian market have some flexibility to deploy labour in or secure labour from either country (an “Australasian” market). The wage differentials are significant, however, with, for example, a graduate engineer starting on $50k in New Zealand and $80k to $90k in Australia. Road markers can earn around $70k in New Zealand but the annual rate in Australia could be up to $120k (although working conditions might be more difficult)
There are skill shortages in the demolition area with crane drivers, gas cutters and heavy equipment operators in short supply.
Very real concern was expressed about the looming accommodation “crisis”. The current situation is relatively good with casual and permanent workers coming into Christchurch being able to locate accommodation.
The Department has been reporting on this issue from its earlier discussions in Christchurch. Companies are looking for some leadership on this matter and evidence that planning is being carried out to meet the, almost guaranteed, future shortages.
Companies seem satisfied with the cooperation they are getting from ITOs and with ITO approaches to training needs.
Apprentices, while not being seen as the complete answer to future labour shortages, are valued by the companies contacted. As work expands it is expected that the number of apprenticeships will also expand. It was thought that because the Canterbury rebuild will take place over many years then there was a good case for getting an appropriate number of young people into apprenticeships and training them properly.
There was not a great deal of enthusiasm for “dumbing-down” qualifications in order to meet the numbers of construction workers required. There would be positions that could be filled by workers with lower levels of training (e.g. as a “hammer hand” or as a painter) but for productivity, quality and health and safety reasons it was thought that construction workers should be properly trained to meet the requirements of the job.
The Central Business District (CDB) Plan was due to be completed and sent to the Government. Not unexpectedly the construction companies have a real interest in the Plan and what it implies for the redevelopment of the central city area.
There was some concern that the consultation draft of the Plan, while demonstrating “fantastic engagement” with the general public, had not adequately captured the views of business. It was hoped that this omission had been remedied in the final version. The Plan had to be a very proactive document and not just a “set of rules”. It had to be able to attract the investors and property developers back in to the central business area.
Questions were posed about the purpose of the Christchurch CBD. Before the earthquakes the CBD had offered a wide range of premises with rental accommodation available at a range of prices ($100 to $400 a sq metre). This attracted a diverse range of businesses which added vibrancy to the area and a rationale for establishing in the CBD.
The situation has changed dramatically and building costs (to meet the new building requirements) are expected to push prices up to the $400 mark. This will make it uneconomic for many businesses to reestablish themselves in the CBD. Added to the affordability issue is the successful relocation of businesses to suburban locations (e.g. Addington), which may make some companies reluctant to return to the CBD.
While there is steady work in commercial construction around the Canterbury region there is still uncertainty about the future of the CBD and commercial reconstruction work in Christchurch city. Insurance issues and delays in serious movement in initiating deconstruction work on damaged tall buildings, are adding to this uncertainty.
There are no major issues with gaining building consents at the moment but there is a concern that the Council is “just holding on” in a fairly slack market. There has been a big increase in the “amount of paper” required to seek and secure a consent. The Council is adopting a proactive stance in relation to consents by consulting with companies about issues and concerns they have. This is appreciated by the industry. But there is a concern that as construction activity builds up the consent process will become overloaded and create serious delays in gaining approval to build.
There are uncertainties surrounding requirements for foundations and companies are developing strategies to work around the inevitable delays they will face in obtaining consent approvals (having a number of projects on the go at once, for example, to enable switching work between projects). “GEO” reports, which are requested as part of the consenting process, usually trigger requests for changes in construction plans and subsequent work on ground stabilization and building foundations. This was mentioned as a very time-consuming part of the process.
Companies are not experiencing significant difficulties with immigration issues and have appreciated the constructive approach being taken by Immigration New Zealand staff in Christchurch.
Looking to the future and their need to ramp up recruitment, companies are keen to know what sort of approach will be taken to facilitate entry of the projected large numbers of construction workers. A continuation of the collaboration shown so far is obviously expected and will be appreciated, but there is some uncertainty about Immigration New Zealand’s policies in relation to such issues as “entry approval in principle” and other innovative ways of speeding up the entry process (a “Canterbury Skill Shortage Visa”?).
The UK construction sector is operating at a low level at the moment and Ireland, in particular, is proving a valuable source of specialized construction industry skills (e.g. quantity surveyors). The recruits, who are taken on for a fixed term, have proven to be well-trained and enthusiastic. They are often relatively young and like living and working in Christchurch. Companies are also recruiting in England and Scotland but the supply capacity has not been put under any great pressure as yet.
Irish workers travelling around New Zealand on working holidays were also mentioned as being a source of good quality casual labour.
It is clear that the scale of the Canterbury rebuild will create many opportunities for the application of innovative design and construction techniques. The new Building Code will require innovative approaches to finding appropriate solutions for building foundations. Creating “green buildings” will stretch the imagination of designers and developers. A company’s ability to innovate is seen by some as a key point of difference when tendering for work.
There have not been many opportunities for pursuing innovative building techniques in the residential sector – given the lack of construction work in that sector so far – but it is anticipated that once work gets underway such techniques as prefabrication and modularization and the use of “new” materials, will become common.
Health and Safety is seen as an important operational policy and is being taken very seriously by the companies contacted. It was noted that workers recruited from overseas need to be given a sufficient amount of training to ensure that they understood the key elements of the New Zealand approach to site safety. This was no reflection on their attitudes to Health and Safety but recognized that the environment and practices in their country of origin may well be different from those in New Zealand.Material shortages are not evident at the moment but there was some concern about concrete supplies when construction work gets underway in earnest. Building supply companies are experiencing flat levels of demand and “are hurting” from a business perspective.