Construction sector productivity stuck in ’80s

When construction industry veteran Frank Xu talks about the sector’s productivity problems, it’s clear the sky is far from the limit.
The former Fletcher Construction project manager remembers when the Sky City development (including the casino, theatre and hotel, but not the iconic SkyTower) was built in the space of a little over two years in the mid-1990s.
When Xu interviewed more than 150 project managers and other senior industry figures two decades later, asking them how long such a project would take, none said less than three years – with some going upwards of four.
“We are actually going backwards: if you measure this in a different way, our productivity is going backwards, so that’s a very fundamental issue.”
Concerns about the construction sector’s productivity rate is one of the key issues laid out in a new report from the NZ Chinese Building Industry Association that Xu heads, seeking to outline the main challenges – and opportunities – for the sector.
The report, produced by economist Shamubeel Eaqub, says productivity in the sector has barely improved since the early 1990s, with the current level similar to what it was in 1985.
A complicating factor is the sector’s reliance on a large number of small firms, which can often be less productive than the average business due to the difficulty of leveraging investments in new technology, training and systems: as the report puts it, “people are too busy working in the business and do not have time for work on the business”.
The report does note New Zealand is far from alone, with most countries in the OECD similarly affected due to the variable factors that affect construction projects such as location, timing, weather and materials.
High worker turnover is also an issue, with close to 40 percent of New Zealand’s construction workers in 2022 having worked in the industry for less than a year. That is a contributing factor to the higher number of work-related injuries in the sector: 22 serious injuries for every 1000 workers in 2024, the second-highest of all industries, and 70 percent higher than the national average.
Xu says a number of construction workers move to Australia and the Middle East for higher salaries, while others simply turn to alternative careers.
“We’re not very good at retaining within the industry: the people just think, ‘Oh it’s not a good industry for me to work on, I’ll move to another industry.”
Capacity issues, along with an increase in medium-density buildings, mean the time to build a home has increased by 50 percent in the last decade, from just over a year to 19 months.
The report suggests three main areas of improvement for the construction sector: better information and coordination to help scale up and commission work, streamlining processes with greater standardisation and faster permitting processes, and improving education and training for workers.
Xu says there may need to be an increase in the number of larger companies working in the industry, given the limited capacity of smaller firms to provide training programmes and career progression.
“If you are stuck in these companies, you are stuck all your life: there are very few people climbing up the ladder in the industry.”
The report’s findings are not entirely negative: sales for the sector totalled $99.4 billion for the year to March 2024 (the majority of which, $70b, went to suppliers, with $17.5b in wages and the remaining $12.2b going towards taxes, debt, reinvestment and dividends).
The construction sector directly employed over 306,000 people in the March 2024 year, with a further 269,400 jobs “supported” across a range of suppliers.
For every $1 million spent in the construction sector, 5.9 jobs are supported for a year (3.1 directly in the sector and 2.8 among suppliers).
While the housing sector is in a cyclical downturn, the report says expensive prices confirm persistent shortages, with massive need, growing demand and a more enabling policy environment all suggesting a “strongly positive” strategic outlook.
It notes a similar need for infrastructure, with an estimated $204b shortfall, but says a key risk is changes in funding tied to changes in government and political preferences.
“This is likely to affect the types of projects rather than an overall desire to improve the quality of existing assets, catch up on the deficits and expand infrastructure capacity.”
Building and Construction Minister Chris Penk, who contributed a foreword for the report, says concerns about the productivity levels and costs of the construction sector are “exactly why the Government is focused on streamlining the building consent system and removing unjustifiable red tape that is slowing down the build process”.
“Lifting productivity in the sector will not happen overnight but it is vital to build more homes so more Kiwi families can benefit from living in a stable home and gain all the associated social and health benefits,” Penk says.
Xu says he remains optimistic about the state of the sector, citing an “outstanding” workforce and signs the new Government is prepared to remove “roadblocks” in the form of excessive regulations.
It’s a sentiment echoed in the report: “The industry is feeling the brunt of recession in 2024. As some businesses close and people lose their jobs, there will be a loss of capacity and capability that will take time to recover but cycles always turn.
“When this cycle turns, the need for more homes and infrastructure will still be there and we will want an industry that is fighting fit.”