tmmonline.nz  |   landlords.co.nz        About Good Returns  |  Advertise  |  Contact Us  |  Terms & Conditions  |  RSS Feeds

NZ's Financial Adviser News Centre

GR Logo
Last Article Uploaded: Sunday, April 14th, 8:46PM

News

rss
Latest Headlines

Construction costs rise expected in wake of floods

The scale of Auckland’s flooding damage could be in the range of $500 million plus and increase construction costs as well as inflation.

Wednesday, February 8th 2023, 2:25PM

by Sally Lindsay

This makes it New Zealand’s most expensive weather-related event. However, it’s well short of the cost of repairs that followed the 2010-11 Canterbury earthquakes, which came in at about $40 billion (spread over many years). Repairs following the 2016 Kaikoura earthquake cost around $2 billion.

To put these numbers in perspective, nationwide building activity (including infrastructure) is running at more than $50 billion a year. The industry is already stretched to capacity, especially in the residential building sector.

This is a major contrast with the Canterbury earthquake rebuild, when the industry was starting from a depressed state in the wake of the GFC recession.

As a result, Westpac economists suspect flood recovery work won’t end up being much of a boost to building activity – rather, some projects will be delayed or shelved while the repair work takes priority.

The additional pressure is instead likely to be channelled into prices and inflation, the economists say. There were signs that construction cost inflation was starting to slow at the end of 2022, but it may now take longer to recede.

Kiwibank chief economist Jarrod Kerr says adding pressure on a capacity-constrained sector means the rebuild will be inflationary. “Construction costs have eased back as supply chains slowly normalise. But exacerbating the lingering shortages could see construction costs accelerate. And as a key driver of domestic inflation, the rebuild frustrates the outlook,” he says.

Kerr says although the Auckland floods will have significant economic consequences, he does not expect it to change the trajectory of monetary policy.

Delayed downturn

The additional work created by the flood recovery doesn’t detract from the broader issues that the homebuilding industry faces, Westpac says.

“The level of activity remains high for now, but the financial incentives for housing development have turned a lot less attractive. Interest rates have risen sharply, building costs are rising rapidly, and existing house prices have fallen. This is leading to hesitancy among both developers and buyers.” As a result, Westpac’s economists expect to see building consents easing back from their elevated levels over the next few years.

That doesn’t mean that a crash in construction activity is imminent.

Over the past year, the number of new consented projects has risen much faster than actual construction activity. As a result, there still is a substantial existing pipeline of planned work. The construction sector is continuing to grapple with stretched capacity and shortages of skilled staff. Those conditions are acting as a handbrake on the pace of building activity.

Even a gradual downturn will prove challenging for some operators. The economists say the homebuilding industry is dominated by small players, often weakly capitalised and with little oversight of their finances.

“Even in the best of times, construction firms account for an outsized proportion of business failures. Those that can tightly control their costs and diversify their sources of income will be best placed to ride out the downleg of the cycle.”

Tags: construction

« Will Election 2023 have an impact on property market activity?Not the time for rent freeze calls »

Special Offers

Comments from our readers

No comments yet

Sign In to add your comment

 

print

Printable version  

print

Email to a friend
News Bites
Latest Comments
Subscribe Now

Mortgage Rates Newsletter

Daily Weekly

Previous News
Most Commented On
Mortgage Rates Table

Full Rates Table | Compare Rates

Lender Flt 1yr 2yr 3yr
AIA - Back My Build 6.19 - - -
AIA - Go Home Loans 8.74 7.24 ▼6.75 6.65
ANZ 8.64 7.84 7.39 7.25
ANZ Blueprint to Build 7.39 - - -
ANZ Good Energy - - - 1.00
ANZ Special - 7.24 6.79 6.65
ASB Bank 8.64 7.24 ▼6.75 6.65
ASB Better Homes Top Up - - - 1.00
Avanti Finance 9.15 - - -
Basecorp Finance 9.60 - - -
Bluestone 9.24 - - -
Lender Flt 1yr 2yr 3yr
BNZ - Classic - 7.24 6.79 6.65
BNZ - Green Home Loan top-ups - - - 1.00
BNZ - Mortgage One 8.69 - - -
BNZ - Rapid Repay 8.69 - - -
BNZ - Std, FlyBuys 8.69 7.84 7.39 7.25
BNZ - TotalMoney 8.69 - - -
CFML Loans 9.45 - - -
China Construction Bank - 7.09 6.75 6.49
China Construction Bank Special - - - -
Co-operative Bank - First Home Special - 7.04 - -
Co-operative Bank - Owner Occ 8.40 7.24 6.79 6.65
Lender Flt 1yr 2yr 3yr
Co-operative Bank - Standard 8.40 7.74 7.29 7.15
Credit Union Auckland 7.70 - - -
First Credit Union Special - 7.45 7.35 -
First Credit Union Standard 8.50 7.99 7.85 -
Heartland Bank - Online 7.99 6.69 6.45 6.19
Heartland Bank - Reverse Mortgage - - - -
Heretaunga Building Society 8.90 7.60 7.40 -
HSBC Premier 8.59 - - -
HSBC Premier LVR > 80% - - - -
HSBC Special - - - -
ICBC 7.85 7.05 6.75 6.59
Lender Flt 1yr 2yr 3yr
Kainga Ora 8.64 7.79 7.39 7.25
Kainga Ora - First Home Buyer Special - - - -
Kiwibank 8.50 8.25 7.79 7.55
Kiwibank - Offset 8.50 - - -
Kiwibank Special - 7.25 6.79 6.65
Liberty 8.59 8.69 8.79 8.94
Nelson Building Society 9.00 7.75 7.35 -
Pepper Money Advantage 10.49 - - -
Pepper Money Easy 8.69 - - -
Pepper Money Essential 8.29 - - -
Resimac - LVR < 80% 8.84 8.09 7.59 7.29
Lender Flt 1yr 2yr 3yr
Resimac - LVR < 90% 9.84 9.09 8.59 8.29
Resimac - Specialist Clear (Alt Doc) - - 8.99 -
Resimac - Specialist Clear (Full Doc) - - 9.49 -
SBS Bank 8.74 7.84 7.45 7.25
SBS Bank Special - 7.24 6.85 6.65
SBS Construction lending for FHB - - - -
SBS FirstHome Combo 6.19 6.74 - -
SBS FirstHome Combo - - - -
SBS Unwind reverse equity 9.95 - - -
Select Home Loans 9.24 - - -
TSB Bank 9.44 8.04 7.55 7.45
Lender Flt 1yr 2yr 3yr
TSB Special 8.64 7.24 6.75 6.65
Unity 8.64 6.99 6.79 -
Unity First Home Buyer special - - 6.45 -
Wairarapa Building Society 8.60 6.95 6.85 -
Westpac 8.64 7.89 7.35 7.25
Westpac Choices Everyday 8.74 - - -
Westpac Offset 8.64 - - -
Westpac Special - 7.29 6.75 6.65
Median 8.64 7.29 7.32 6.65

Last updated: 8 April 2024 9:21am

About Us  |  Advertise  |  Contact Us  |  Terms & Conditions  |  Privacy Policy  |  RSS Feeds  |  Letters  |  Archive  |  Toolbox  |  Disclaimer
 
Site by Web Developer and eyelovedesign.com