Residential building costs look likely to head higher early next year as a shortage of skilled staff and difficulties sourcing supplies put upward pressure on costs at a time when demand is surging.
The latest QV Costbuilder report from Quotable Value shows the average cost of building a new home in the six main centres rose on average by 2 per cent in the year to October. That’s lower than the 2.4 per cent rate last year, and the 4.9 per cent rate the year before after building work stalled during lockdown and uncertainty around future work kept a lid on wage rates.
“It is definitely going to be higher than that next year,” said Julien Leys, executive director of the Construction Strategy Group which represents leading companies across the construction industry. “In the short term, with the pressure we are facing and the demand, I can only see prices going up.”
As low interest rates fuel a boom in secondhand houses, pushing up prices 15 per cent a year, demand for new builds is also sky-rocketing with house building consents hitting their highest annual level in 46 years in October.
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“We are going to see several years of home building activity, and we are likely to see that spread across the country,” said Westpac senior economist Satish Ranchhod. “It’s a strong construction outlook and probably stronger than we had previously anticipated.
“Things are heating up and when we chat to most construction firms, they are telling us that demand is pretty firm and I think that we will probably start to see some of that pressure coming through over the coming year.”
While some are hoping that this future supply will cool the housing market, those in the building industry are wary that constraints around labour and supplies may also push up prices for new builds.
The construction industry, which employs between 250,000 and 260,000 people, estimated before Covid-19 that it would be short about 50,000 workers next year and had planned to address that through changes in the education sector and bringing in skilled workers from overseas.
However the estimated shortfall has now risen to 60,000 due to Covid, as vocational training plans have been delayed and skilled workers haven’t arrived.
“Covid has just accelerated and accentuated the problem,” said Leys. “What we are seeing is far higher demand. Builders are just pushing projects down the line and taking longer to get them started.
“There’s a significant lack of skilled labour in the housing market,” he said. “If you talk to any small, medium, or even larger residential builder, they are really struggling to get people, and so that matched with demand means you are now seeing delays.”
Leys said the constraints will definitely have an impact on costs as some people will be prepared to pay a premium to get their work done on time.
He wants the Government to allow skilled overseas workers from his industry to come in to the country just as it has for the horticulture industry. The Government announced last month it would allow 2000 horticultural workers from the Pacific to enter New Zealand next year under strict conditions, in the first significant opening of the border to foreign workers since Covid.
“The building and construction sector needs people as well, and we are very keen to do something, even if it means putting on private capacity in terms of managed isolation facilities to get those people in,” he said.
“Changes to the vocational sector are going to take some time to work through and until that happens we are going to need to have those people being brought in from overseas – any number would be good because at the moment we have nothing.”
KIRK HARGREAVES/Stuff
There are concerns a lack of workers could push up the cost of new housing.
Bringing unskilled labour into the industry during times of high demand can lower productivity as more time and money is spent fixing defects, he said.
In October, the number of construction and roading roles listed on Trade Me’s website increased 11 per cent compared with the same month last year, while the average number of applications per listing dropped by 20 per cent.
“With a double-digit percentage increase in roles for construction and roading, recruiters and employers are finding it tough to secure the talent they want,” said the head of Trade Me Jobs, Jeremy Wade. “We are hearing anecdotally that this is partly due to the lack of foreign workers that we would usually see make up a fair proportion of hires at this time of year.”
Meanwhile, building supply companies have started warning their customers of price rises ahead.
Mitre 10, New Zealand’s biggest hardware store chain, told its trade customers last month that it was facing unique and challenging times, with significant increases in international and domestic demand putting pressure on supply chains worldwide.
A surge in international competition for product meant container availability was at an all-time low, it was taking longer to get products and freight costs were rising, trade manager Laurie Gallen said in a note advising that some timber and related products would rise between 5 and 8 per cent in February.
Leys said the cost of a 40-foot shipping container from Asia had jumped from $750 to $4000, and changing shipping routes, increased handling, and more expensive air freight were all adding to costs.
“It’s a real problem. At the moment the industry is absorbing some of that, but they are going to eventually pass those costs on because it doesn’t seem like there is going to be any change in the situation in the near term,” he said.
“That’s going to flow through probably by March of next year into consumer prices and building prices.”
PlaceMakers, the retail building supplies chain owned by Fletcher Building, said supply chain challenges combined with high demand is putting pressure on the availability of some products, and advised customers to plan ahead.
“Many industries in New Zealand are experiencing supply chain issues and increased freights costs due to shortages and delays in shipping capacity, container availability and port space,” said Bruce McEwen, chief executive of PlaceMakers. “Whilst this is an issue across the industry, we are minimising any price increases for our customers where we can.”
Metro Performance Glass, the country’s largest glass manufacturer, has said it’s monitoring significant disruptions and delays in international shipping caused by a surge in demand for sea freight and backlogs at key ports.
Chief executive Simon Mander said it had increased stock levels and expected an increase in shipping related costs in the six months to the end of March.
According to QV Costbuilder, general building materials increased 4.7 per cent in the year to September across the six main regions, while labour costs rose 2.8 per cent.
