We’ve seen a fair few construction companies go under or get close to it recently.
It’s the right thing to happen. It’s going to happen often. And it’s the right time to happen.
Construction here, as elsewhere, is a totally cutthroat business. It’s all about stripping back costs to just under the point the client doesn’t notice, then getting them to pay for the tags. It is the most macho of industries outside of a freezing works.
But here’s why these failures are good.
1. Almost all of those companies going into receivership are those doing work for vertical construction, not for infrastructure. Their commissioning clients are large for-profit ventures mostly forming multistorey apartment, hotel and commercial buildings. This ain’t socialism.
2. The remaining subcontractors will view working for the remaining construction businesses with a much higher risk margin. Getting more discerning about taking on the work is appropriate.
Some subcontractor tradespeople may determine that being a very small business, without the protection of a union or of a large company, is not worth it. A few stalwart entrepreneurial types may try again once the bankruptcy shadow wears off. The sensible will aggregate with a larger structure and not let their skills be lost to New Zealand. Whether your collective is corporate or union, it’s a good net result.
3. There is so much infrastructure work building networks for public good rather than private gain that many such trade subcontractors will be absorbed elsewhere. That’s redirecting private gain towards public good. Good net result.
4. The state itself is gearing up to take a much stronger place in managing real estate capitalism. It hasn’t been tried for a while, and there are head-exploding risks with taxpayer money. But the net result is more housing, more public policy outcomes for people, not necessarily more exorbitant private sector profit.
(There’s also a shortage of builders for actual houses. It is now almost impossible to build a house for under $3,500 a square metre in most cities)That’s another area many such builders can go once that really gets going, and it’s right.
5. More commissioning clients will move to Early Contractor Involvement or even Alliance procurement models to work together to strip risks and cost escalations out before the digging starts. Those are well-rehearsed tools within the infrastructure and civil engineering industry, and it’s about time they were more transferred to break down constructions’ macho dick-swinging bullshit and start building trust in the commissioning client.
6. New Zealand has far, far too much capital tied up in speculative property, so failure is sending the right investment category signals. We don’t yet have a tax structure that signals that it’s not buildings and the economy of rentier capitalism that need the investment to generate fantastic and fruitful careers, products, and services. We can use this moment of consistent failure in construction to reallocate investment risk to the stuff New Zealand needs more investment in to really prosper. If this many failures were occurring in startup tech ventures next to Glidepath, Jade, Wingnut, Weta, Fonterra, or Xero, we would be feeling the appropriate blood pressure of a fully-alive innovation system. Instead we see yet another bloodletting of the real estate capitalism that strangles other sectors of investment. Don’t weep.
7. This is the right time to fail. Huge absorbtion capacity in the economy still. A slow but real alignment of the economy. Demand for housing relentlessly high. Pressure on Councils and public departments to require quality less than speed. A government growing the economy with massive redistribution, more to come, and more if needed. Failing during the inevitable recession sucks, but failure now could not be better.
Most of us have been through a few real estate boom-bust cycles. Mezzanine finance isn’t collapsing since most of them were taken out in 2007-2009. We’re being let down easy this time.
This set of failures are painful, but they are painfully sending the right signals at the right time for the right reasons.
So let them fall.