Consenting changes aim to reduce costs and increase efficiency

The government’s multifaceted approach to try and improve the affordability of housing has included several announcements around possible changes to the building consent and inspection framework, aimed at improving the efficiency of the system and reducing compliance costs. This article does not attempt to fully cover all the potential rule changes, but instead focuses on how a couple of key changes could affect builders.

Perhaps the most significant proposed change for the industry is the move to allow self-certification of work in selected situations, rather than requiring an independent inspection of work by a building inspector from a local council or similar authority. The government has proposed limiting self-certification to “lower risk activities” such as a standalone single dwelling, with additional requirements for builders around technical competency and knowledge of the building code, a minimum level of practical experience, and evidence of financial stability and regulatory compliance.

If introduced as proposed, these changes are likely to work in favour of larger and more established residential construction firms. Over much of the last 30 years, we have typically seen increasing levels of consolidation in the residential construction industry, as economies of scale have reduced the relative competitiveness of smaller operators – a trend that has been most prevalent in downturns, when smaller businesses can often be less resilient. The greater level of standardisation associated with group home builders has also enabled them to provide homes at a lower cost, on average, than smaller building firms constructing more customised homes. We would expect these trends to be accentuated by the cost savings and efficiencies able to be achieved by firms that are authorised to self-certify their work. In addition, other proposed changes by the government to reduce the number of building consent authorities and develop more consistent application of the building code across the country should also favour home builders working to standardised designs.

The second area of change that could significantly affect the construction workforce is the proposed move towards a more streamlined building consent process with greater requirements around digital submission. As an example, the use of Building Information Modelling has grown over recent years to manage construction projects through specification, costings, and timelines. This use of technology provides improved efficiency and communication between the different agencies involved in a construction project, but it also requires considerable upfront investment – both at the start of an individual project to ensure it is fully specified, but also from a business capability perspective in terms of training for staff.

Moves towards more mandatory use of Building Information Modelling or similar digital platforms are likely to pose challenges for older workers or smaller construction businesses that might struggle to find the time or money to invest in the necessary training. Greater use of technology might appear to favour larger building firms that have greater capacity for investment, but there are significant potential benefits for small and medium-sized businesses that could also be realised over time if appropriate support and training is provided. As such, these changes present an opportunity for lifting construction’s productivity performance, which has long been a concern for those involved in the industry.

As Chart 1 shows, productivity growth in the construction industry has lagged the rest of the economy throughout much of the last 30 years. Even since the Global Financial Crisis in 2008, when economy-wide productivity growth has averaged a modest 0.7%pa, construction productivity has failed to keep pace, managing just 0.2%pa growth.

The unaffordability of housing in New Zealand is a complicated problem, with a myriad of causes that have built up over a long period of time. Possible changes to the building consent system shape as a small part of broader measures that include increasing the supply of land and provision of associated infrastructure, addressing costs and certification around building materials, and reducing other red tape and bureaucracy associated with the supply chain for new homes. Although some of these other issues look like they could make a more significant contribution to improving housing affordability over the medium term, productivity and process improvements within the construction industry should not be ignored – particularly where the industry’s processes intersect with local and central government oversight and regulation.

As a footnote, we’d note that the ability to self-certify would eliminate the need for a building consent in some cases. Such a move would reduce the coverage of consents as an indicator of construction intentions – a useful indicator going back to the 1960s. We raised this recently in a meeting with the Minister of Building and Construction and asked for consideration for some form of data to collection to occur. A balance would be needed between getting good data, and not making the process onerous for builders – but good data is important to get to grips with where the industry is and is going.

We now have a regular meeting with the Minister to provide updates on economic and building trends as we see them, and also to keep informed about wider building industry outcomes.