Construction inflation expected to slow down

AUCKLAND: 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%, which is forecast to slow to 6% this year, 3.5% next year and 3% in 2021, according to quantity surveying firm Rider Levett Bucknall’s latest Oceania Report of tender prices. Christchurch is coming off its 2015 postearthquake peak of 6% growth in tender prices. Increases this year were expected to remain at 3%, matching last year, and to shrink to 2% next year.

Wellington tender costs are expected to lift 6% this year from 5.3% last year, before slowing to 4% next year and to 3% by 2021.

Construction costs in New Zealand have been rising at a faster pace than overall inflation of 1.1%, underpinned by record tourism and migration levels. However, labour shortages and escalating costs were 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 chairman 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% by 2021 to 3%, while Christchurch’s escalation will remain constant at 2% from 2019 onwards.’’

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 . . . 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 . . . 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 was now stable and forecasts for 2019 onwards were expected to remain close to inflation at 2%, 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 traderelated and extraordinary escalation spikes. There are still . . . major projects getting under way 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.’’

Wellington continued to experience strong growth, the report said.

RLB’s McDonald said construction sector firms continued to report acute labour shortages.

‘‘Skilled labour is particularly hard to find, although shortages have eased slightly.

‘‘Planned reductions in migration may impact on future escalation rates if skilled trade labour demand is not met.’’ — BusinessDesk

❛ Moving forward, expectations are that escalation will decline in all cities.