Build costs accelerate near peak
The residential market is driving construction growth,
New Zealand’s wave of construction will peak next year, predicts construction and quantity surveying consultancy, Rider Levett Bucknall.
Rising construction costs will continue to outstrip inflation as the New Zealand and Australian economies enjoy economic growth over the next two years.
RLB’s Auckland director, Geoff Speck, said the residential market is fuelling growth.
Economic growth is expected to moderate to about 3 per cent as net immigration and the Canterbury earthquake rebuild start to slow.
Meantime, household consumption and investment are increasing as wages and employment rise.
The outlook is different for the various regions and there are hiccups along the way.
For example, Speck said that in Auckland, some projects may be shelved due to tighter lending and higher construction costs.
RLB forecasts growth in construction costs this year of 4.6 per cent in Auckland, 4 per cent in Christchurch and 4 per cent in Wellington.
For 2018, RLB is forecasting construction cost growth of 3 per cent in Auckland and Christchurch, and 4.5 per cent in Wellington.
Auckland’s house, apartment and civil sectors are at peak growth stage, while offices, industrial and retail sectors are in the mid growth phase, Speck said.
More than half Auckland’s growth is driven by the residential sector.
The recent release of the Auckland Unitary plan has loosened planning restrictions to allow more intensification, opening greenfield developments on the city fringe.
City planners estimate 422,000 additional dwellings will be required by 2040 with net migration last year of about 32,000 people.
Several large commercial are nearing delivery with more planned to start construction, Speck said.
‘‘Auckland’s heated market has created tight demand for contractors and the larger ones are generally fully booked.’’
Some out of town contractors have set up in Auckland to fill the void, namely Leighs Construction from Christchurch and LT McGuiness from Wellington.
Lack of resources is increasing prices and affecting delivery of projects.
‘‘There is a lack of contractors with the resources and skills to deliver the number of large projects in Auckland.’’
A number of ‘‘good size projects’’ are underway in Wellington as the market improves, RLB’s director in the capital, Grant Watkins said.
Three more tower cranes have been erected in Wellington over the past couple of months and some large projects are at the design stage.
Cost escalation in Wellington is emerging after being flat since 2008 - more in labour costs than materials
‘‘Building volumes remain at low levels compared with other centres around New Zealand.
‘‘But given the likely activity, we will see increasing escalation over the next few years.’’
Sub trades are experiencing labour shortages not seen for many years.
A few larger Wellington projects are at the design phase and are likely to come to the market in mid-2017.
Christchurch’s civil sector is peaking, while the office sector is in the ‘‘peak decline stage’’ as new building tapers off.
Canterbury construction levels have been at record highs for several years.
RLB’s Christchurch director Neil O’Donnell said with the rescheduling of a number of projects and the likely rebuild period continuing for longer than originally expected, means demand has continued at a lower level than originally anticipated.
‘‘This has had a knock on effect by reducing expected construction costs,’’ O’Donnell said.
There were still specialist areas where demand for personnel and materials was ‘‘extraordinarily’’ high on a project by project basis, he said.
Auckland's heated market has created tight demand for contractors and the larger ones are generally fully booked.