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15 Mar 2021

Construction Costs Higher Than Australia

Construction challenges are rising in New Zealand, as the impacts of COVID-19 continue to affect the residential and commercial building sectors. The cost of labour and materials is higher than Australia according to experts, as the industry struggles with the price and availability of key resources. Along with the pandemic, the industry is facing increased demand for materials and freight due to record building consent numbers in Auckland and other heated markets.  

According to a Statistics New Zealand survey on the impacts of COVID-19, Auckland residential building companies were struggling to get the right gear for the job. In the report, 6 out of 10 respondents said they faced difficulty sourcing materials or equipment. Supply issues and price increases were the most mentioned complaints, mostly due to disrupted supply chains and soaring freight charges.

The amount of activity is proving challenging in current conditions, with Auckland issuing a 10% increase for new homes last year at 16,656 consents. These numbers are only likely to rise in coming months, as governments at every level attempt to tackle the housing affordability crisis. According to Statistics NZ construction statistics manager Michael Heslop, “The record levels of new homes consented in Auckland in 2020 means that demand for materials and freight will be up.”

According to Mr. Heslop, the local market is inherently more competitive than Australia for most things, including building materials and professional services such as architects, engineers, and designers. Along with global shortages and ongoing demand considerations, the New Zealand construction industry faces additional pressure on multiple fronts, including lower wages, more merchants, reduced economies of scale, and competition between government housing and private building projects.

"We know that across the board salaries, including in the building and construction industry, are less in New Zealand than Australia." said Mr. Heslop, adding "Moreover, New Zealand had six national building and construction merchant chains (Mitre 10, Placemakers, ITM, Carter’s, Bunnings, and Build Link), whereas Australia, with a market of 25 million, only had two (Bunnings and Mitre 10)."

According to Mr. Heslop, "The issue is not the lack of competition but the lack of building houses at scale combined with the massive increase in the cost of land over the last 10 years. If we built more standardised houses (not bespoke designs), encouraged larger companies to build by awarding sizeable projects... and made more land available, we would solve our housing crisis. It is not rocket science but no one has joined the dots to achieve all of these things."

Aaron Hockly embodies many of these issues as the chief executive of NZX-listed Vital Healthcare. This company oversees 42 healthcare investment properties in Australia and New Zealand, and is responsible for the Wakefield Hospital in Wellington. According to Mr. Hockly, construction costs have increased so much that they are considering contracting services out to Australia: "The costs are going up much faster than in Australia. That's been the case for a couple of years now... the Government pushing through with its infrastructure pipeline is fantastic, but it just means [that] we're competing for those same types of workers."