OPINION: The impact of Covid-19 is incalculable. The immediate impact on physical and psychological health is immense.
Governmental planning has been driven by modelling that predicts mass infections and substantial mortality. Not unreasonably the New Zealand government instituted a countrywide lockdown. The effect has been monumental. Movements stopped, businesses closed, all bets are off.
It is too soon to say whether we are through the worst of it. What can be said is we need to plan for “the morning after”. At some point we need to get back to work, otherwise inevitable recession could metastasise into depression.
Construction is the commercial canary in the economic coal mine. First to tip into decline in a downturn. First to show green shoots of recovery. The reason for this is the industry is driven by cashflow volume rather than percentage earnings. Builders have low reserves and run out of cash quickly in a downturn. But new construction can start relatively quickly with financial resource availability.
“Nice to have” projects, such as Skypath, may have to be put lower on the priority list. Economists and politicians recognise we build our way out of recession. In the decade since the GFC, we have seen continuous sectoral growth. Yet it has taken all those ten years to grow a housing sector that is still yet to match housing demand. Recently we have seen feelers from Government via Mark Binns at Crown Infrastructure Partners (CIP). The request was for “shovel ready” projects Government could potentially invest in as economic stimulus for construction and the wider economy.
However describing projects as “shovel ready” tends to imply a relationship to dirt, clay, excavation and civil engineering type projects – i.e. horizontal infrastructure. Whilst infrastructure investment is generally laudable, this may have relatively limited economic benefit in the current situation.
Infrastructure isn’t synonymous with the entire construction sector. It is one part of an industry comprising three distinct subsectors – horizontal (roads, water etc), vertical (commercial and multi-storey) and residential (housing). The skills and trades in each subsector do not move between them. Residential uses much more labour; horizontal construction much more plant machinery. Vertical construction is somewhere between the two. Horizontal constructors particularly have skills with limited application elsewhere.
If the intention of Government is to restart the economy, focussing only in horizontal construction would be a missed opportunity. Post-pandemic planning for construction should be focussed on maximising employment across the country. In terms of labour utilisation, residential and vertical constructions use vastly more tradies and subcontractors to deliver their outcomes compared to horizontal construction. Typically up to 50 per cent of all expenditures on a vertical or residential project is in the form of direct labour. Materials and other services have further labour costs associated.
Money going into the hands of tradespeople starts immediately at commencement of projects rather than filtering through later. By contrast horizontal construction has typical labour values of 25 per cent to 30 per cent. Stimulus investment in vertical or residential construction can potentially have twice the employment bang per stimulus buck. We need to think beyond “shovel ready” towards “workforce ready”.
Government needs to take balanced investment approach across the three subsectors if employment is a key focus. Identifying and funding vertical and residential projects we can leverage to rapidly mobilise employment opportunities is essential. This implies we may need to defer “nice to have” projects, such as Skypath and light rail, in favour of health, education and social housing investments.
We should be considering the asset condition of health and education infrastructure across New Zealand. All Governments like to make marks by building impressive new buildings. Regrettably they have all neglected prudent asset management as equally essential to the health of the nation. Estimates put the current health capital building programme at $10 billion to $14b. Countrywide backlog maintenance is $4b to $5b.
The well-publicised poor condition of Counties Manukau health facilities is symptomatic. Similarly backlog maintenance for education from preschool to tertiary is likely of comparable magnitude.
Maintenance backlogs could be unleashed immediately when buttons were pressed. Tradies and SMEs would respond without delay. Better yet, most work won’t be tied up with RMA and consenting. “Shovel ready” infrastructure projects are undoubtedly central to post pandemic planning. However they should be seen as part of a wider tapestry of options. Keeping tradies busy now on backlog maintenance of public sector assets would provide a resilient resource that could be transferred to the private sector after recovery.
We’re in the jaws of a systemic crisis. We need to build our way out through targeted investment. Silver bullet infrastructure spends need to be tempered. We need to retain key skills, maximise employment outcomes and enhance resilience in critical assets. Starkly put – Government should decide whether its policy is to maintain construction employment or construction machines.
Dr John Tookey is professor of construction, director of Centre for Urban Built Environment (CUBE-NZ) at AUT University and Dr Tony Lanigan MNZM is director major projects – estates group at AUT, distinguished fellow of Engineering NZ, former director of Infrastructure Auckland, NZTA and Watercare, director (and former chair) of NZ Housing Foundation and a member of the Ministry of Health’s governance group for Christchurch Hospitals’ redevelopment.