Construction costs in New Zealand see biggest jump since global financial crisis

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The cost of residential and non-residential construction rose by more than 10% last year – the biggest increase since before the global financial crisis – and similar forecasts are expected for 2022, says the New Zealand Infrastructure Commission, Te Waihanga, in his latest Infrastructure Quarterly report.

“Infrastructure providers, property developers and households are trying to build more than ever, but labor shortages, material supply chain bottlenecks and Covid-induced slowdowns have stands in the way,” said Peter Nunns, Te Waihanga’s director of economics.

“While COVID-19 has exposed our problems – it is not the only cause. Even before the Covid pandemic, New Zealand was struggling to grow and heavily reliant on international labour. reflects long-term issues around workforce capacity and capabilities, material supply chains, and investment volatility.”

“These ‘pre-existing conditions’ have made our construction market unusually vulnerable to Covid – underscoring the importance of addressing these issues to build resilience and address our long-term infrastructure challenges.”

Government policy on immigration has changed significantly since the arrival of COVID-19. The relief valve at times of rapid demand growth was previously funded by international labor – a factor that contributed to the doubling of residential construction workers in Auckland between 2011 and 2019 [1]
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However, despite the various immigration pathways for “critical workers”, industry feedback suggests that immigration and MIQ constraints have effectively closed the door to the international workforce, leaving us short skilled construction workers. This has led to an extremely tight construction labor market, fueling cost pressure.

Construction cost inflation in New Zealand is among the highest in the OECD.

“New Zealand has had the 10th highest construction price inflation in the OECD during this period, but again, this is not just a Covid-era phenomenon. Over the past five years, New Zealand has had the seventh highest construction price inflation in the OECD. Our residential construction price inflation has averaged 5.2% per year from 2016 to 2021.”

Te Waihanga is considering these issues when developing a New Zealand infrastructure strategy. In his draft strategy, he included recommendations that will help combat cost inflation, such as ensuring more emphasis is placed on making good decisions and planning for the building.

“We can only build high-quality infrastructure at an affordable cost if we make the right decisions about how to plan, invest, deliver and manage our infrastructure. Likewise, we need the right people at the right time, with the right skills to build our construction industry,” said Peter Nunns.

Quarterly Infrastructure Report is available on the Te Waihanga website website.

[1]
https://knowledgeauckland.org.nz/media/1714/tr2020-002-aucklands-construction-sector-trends-to-2019.pdf

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