|
|
|
|
|
|
|
New Zealand Construction Cost Inflation will resume normal growth in 2023
However, overall costs will not decline, they will resume normal rates of inflation from the new, higher, base
|
Macromonitor has released the first edition of our new report on construction cost inflation in New Zealand, New Zealand Construction Cost Trends, Rapid cost inflation is persisting with an estimate of 9.3% cost growth in calendar 2022. We estimate cost growth has peaked in calendar 2022, although at different times during the year, depending on the sector, as seen in the chart below. The rate of inflation is expected to return to more normal rates, for all sectors, in calendar 2023.
|
Two key points to note however are:
|
- Overall construction costs will not decline following the current surge; rather, they will resume normal rates of inflation from the new, higher, base, and
- Some cost items, including wages, will be rising at a faster rate than their historical averages for quite some time, with the declines expected in other items, such as oil and metals, bringing down the overall rate of increase.
|
|
The rate of total cost inflation in building and construction has been rising rapidly to 13.8% in the year to June 2022 and we estimate an increase of 9.3% in the year to December 2022. This is the combined result of; a spike in commodity prices (impacting fuel, metal products and transportation costs), plus a particularly large rise in timber prices, and smaller, but possibly longer-lasting, increases in items such as wages, concrete and asphalt.
|
The normalisation of cost growth, and declines in the price of some items, should see total costs increase by less than 2% in 2023 and 2024. Cost increases should settle back to between 2% to 2.5% annual growth from 2026 onwards. This is slightly higher than the historical average.
|
Looking at the underlying causes of the current surge in cost inflation, there are four main factors:
|
- Solid growth in New Zealand building and construction activity, following the COVID slump of 2020, which peaked during a period between late-2019 and mid-2022, and which pushed up demand for all inputs to construction,
- Rising commodity prices as a result of the rebound in the world economy following the negative impact of the pandemic,
- Supply constraints and rising shipping costs related to the effects of the pandemic and the policy responses, and
- The impact of the Ukraine conflict, particularly on prices of oil and steel.
Subsequently, the decline in cost inflation, from 2023, will be due to:
|
- The expected eventual downward correction in commodity prices, most notably steel and oil, as global supply begins to improve, and as the Ukraine situation is eventually resolved, or stabilises,
- A plateauing of construction activity growth, and the decline in residential building in particular (already apparent in consents), which will take some of the pressure off prices of construction inputs,
- An increase in the supply of inputs and an improvement in shipping and other supply constraints, including the re-opening of borders which will improve the mobility and supply of labour, and
- A general weakening of demand conditions in the global economy, and in New Zealand, mainly as a result of tighter monetary policies, which in turn has been a response to elevated rates of inflation.
|
|
For more detailed forecasts and analysis please subscribe our forthcoming report – New Zealand Construction Cost Trends. This report provides a cost indexes, by material type, labour, equipment and services.
|
|
|
|
|
Our most recent reports:
|
|
|
|
|
Australian Construction Outlook - Non-Residential Building
|
|
|
This report examines the current downturn underway in the non-residential building sector, describes its causes and forecasts the timing of the coming recovery, by sector and state.
|
|
|
|
|
|
|
|
Australian Construction Projects Database
|
|
|
This latest list of projects corresponds with our fully revised set of forecasts published in November 2021.
|
|
|
|
|
|
|
|
Australian Regional Construction Outlook
|
|
|
Our latest regional forecasts for residential building and construction have just been released.
|
|
|
|
|
|
|
|
Australian Construction Materials Forecasts
|
|
|
Our latest forecasts assess the implications for construction materials demand of the current downturn in residential building, and the looming downturns in non-residential building and renewables investment.
|
|
|
|
|
|
|
|
Australian Construction Outlook - Transport Infrastructure
|
|
|
This report provides a detailed picture of the current upturn in infrastructure construction, including the timing of major projects, key drivers, and the expected timing of the peak and next downturn.
|
|
|
|
|
|
|
|
|
|
|
