Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 

NZ construction inflation to slow due to escalating costs

NZ construction inflation to slow as escalating costs damp demand

By Tina Morrison

July 13 (BusinessDesk) - Construction inflation across New Zealand's main cities is expected to slow in coming years as escalating costs soften demand, according to an industry report.

Auckland experienced the biggest cost inflation last year, at 8 percent, which is forecast to slow to 6 percent this year, 3.5 percent next year and 3 percent in 2021, according to quantity surveying firm Rider Levett Bucknall's latest Oceania Report of tender prices. Christchurch is coming off its 2015 post-earthquake peak of 6 percent growth in tender prices, with increases this year expected to remain at 3 percent, matching last year, and shrinking to 2 percent next year. Meanwhile, Wellington tender costs are expected to lift 6 percent this year from 5.3 percent last year, before slowing to 4 percent next year and to 3 percent by 2021.

Construction costs in New Zealand have been rising at a faster pace than the country's overall inflation of 1.1 percent, underpinned by record tourism and migration levels. However labour shortages and escalating costs are expected to damp demand in the future, RLB said.

"Across New Zealand, escalation forecasts for 2018 remain elevated with all regions forecasting tender price index increases above current consumers price index levels," RLB Oceania chair Ewen McDonald said in a statement. "Moving forward, expectations are that escalation will decline in all cities.

"Auckland and Wellington’s escalation is forecast to fall 50 percent by 2021 to 3 percent, while Christchurch’s escalation will remain constant at 2 percent from 2019 onwards."

RLB noted that Auckland's construction market has been under resource pressure.

"The Auckland region continues to have strong growth through migration and tourism. Although numbers have cooled, there is still a pipeline of work to support the surge in population growth over the last few years," the report said.

"Moving forward, expectations for Auckland are that market forces will take effect and increasing costs will soften demand, thus easing escalation."

RLB said Auckland's construction market, particularly for projects worth more than $100 million is "severely stretched" and the withdrawal of the Fletcher Building and Interiors unit from bidding "leaves a significant gap in the market and the market’s capacity to deliver large complicated projects."

"The subcontractor market across the board is also under resource pressure and this is seen in poor tender responses and volatile pricing. The lack of skilled resources is affecting productivity and cost, slowing projects down and leading to higher preliminaries costs and late completion of projects. These market issues may dissuade new market entrants filling the void left by Fletcher."

In Christchurch, tender inflation is now stable and forecasts for 2019 onwards are expected to remain close to inflation at 2 percent, the report said.

"The Christchurch rebuild peak has now been reached with respect to both residential and commercial projects," it said.

"Construction escalation has slowed somewhat in the last period. Major and complex projects still see trade-related and extraordinary escalation spikes. There are still a number of major projects getting underway as well as those due for completion next year. This will continue to put demand on key trades for the foreseeable future and result in continuing tender price increases. Demand from other cities is also drawing some resources away from Christchurch as work becomes available."

In the capital city, Wellington continues to experience strong growth, with many projects committed while other larger projects are reaching completion, the report said.

"Building cost escalation is continuing to outstrip inflation levels by some margin. Subcontract resources are stretched and we are seeing significant price increases in various trades due more to a lack of competitive tension rather than market inflation," it said.

"Many companies are continuing to experience labour shortages due to a lack of personnel coming into the Wellington market given the prevailing conditions in most other regions of New Zealand. This level of workload has no precedent and also has no end in sight given the favourable economic conditions prevailing currently."

RLB's McDonald said construction sector firms continue to report acute labour shortages.

"Skilled labour is particularly hard to find, although shortages have eased slightly from levels seen in mid-2016," he said. "Migrants have helped alleviate labour shortages, with the number of technicians and trades’ workers moving to New Zealand on a work visa in recent years. Planned reductions in migration may impact on future escalation rates if skilled trade labour demand is not met."

(BusinessDesk)

ends

© Scoop Media

 
 
 
Business Headlines | Sci-Tech Headlines

 

Auckland Port Move: Cabinet Ministers Deliberate On Report

Cabinet ministers now have a copy of a report urging the government to move the Auckland port up north, but say no final decisions have been made. More>>

ALSO:

Toxicology Tests Planned: Dead Rats Washed Up On Beaches

As many as 600 rats washed up on Westport's North Beach over the weekend to the horror of locals. DOC said they may have been killed by a recent 1080 poison drop 140km away and washed down the Buller River after heavy rain battered the coast. More>>

ALSO:

Transition To Low Carbon: Mineral And Petroleum Resource Strategy

Responsibly Delivering Value – A Minerals and Petroleum Strategy for Aotearoa New Zealand: 2019-2029 has been developed to provide the direction for the sector in the transition to a low carbon and productive, sustainable and inclusive economy. More>>

ALSO:

MethaneSAT: Methane Satellite Mission Control In New Zealand

Mission Control for an international space mission to help tackle climate change will be based in New Zealand, with the Government putting $26 million towards the state-of-the-art satellite...More>>

ALSO:

Real Estate: Late Spring Surge

The continued shortage of quality real estate listings, coupled with record low mortgage interest rates have combined to add some zing to the property market over October. More>>

Wellbeing Stats: Finances Less Terrible And Less Great

According to results from the General Social Survey, the proportion of people who felt they had enough or more than enough money to meet everyday needs increased from 51 percent in 2008 to 63 percent in 2018, Stats NZ said today. More>>

ALSO: