According to the Rider Levett Bucknall (RLB) 1st Quarter 2019 Oceanic Report, labour is a growing concern across New Zealand, putting pressure on construction costs across the country.
Geoff Speck, Director of RLB said, ‘The construction industry currently contributes nine percent to New Zealand’s total workforce. While the workforce has grown over time, in line with additional activity, it appears to be only just keeping up with current market demand.’
Pressure growing for contractors and subcontractors
‘As such, the pipeline of building and non-heavy industry engineering work within New Zealand is continuing to place pressure on both head contractors and subcontractors who are finding it challenging to secure adequate levels of labour for current and future projects,’ he added.
A recurrent theme has come to light through tender interviews with head contractors and general discussions within the industry. Across RLB’s Oceania offices, availability of skilled construction workers has become an issue at the forefront of people’s minds.
Innovative work methods could ease work shortages
Geoff continued, ‘The needs of the present, not to mention the future, requires the construction industry to adjust. By implementing new and innovative work methods, potential labour shortages could be mitigated through increased off-site fabrication, embracing the use of technological aids and challenging traditional methods.’
As the construction workforce, mirroring the total workforce in New Zealand, has shifted towards a more aged and higher qualified demographic, there are also concerns about whether new levels of entrants to the industry will adequately replace the personnel leaving the industry over the next decade.
Building activity records five-year peak
New Zealand building activity continues to grow, recording a five-year peak with $22.0 billion. Total residential activity (new plus altered) more than doubled in the five-year period, reaching $14.3 billion for the 12 months ending 30 June 2018.
New residential activity contributed the most to national activity in FY 2018, making up 55% of total work put in place during the period.
Escalation for 2018 saw all regions reporting increases above current CPI levels (2.0% per annum). The exit of Fletcher Building from the vertical construction market and the liquidation of Ebert Construction in 2018 has increased the uncertainty over the levels of construction cost escalation due to a realigning of risk profiles within new projects. However, there is an expectation that large cost increases will be offset by a cooling in development demand.
Funding announced to support major infrastructure projects
In 2018, the Minister for Housing and Urban Development announced $339 million worth of 10-year interest-free loans to Auckland Council to support major infrastructure projects in Auckland’s northwest. This infrastructure funding aims to bring forward the delivery of approximately 7,000 new homes within the Auckland region.
According to RLB, securing appropriate contractors and subcontractors to deliver $100 million plus projects in Auckland continues to be difficult and project timelines are likely to be compromised. Escalation forecasts for Auckland are unchanged from six months earlier.
Christchurch projects continue to put demand on key trades
In Christchurch, major and complex projects still see trade related and extraordinary escalation spikes. The Hospital and Convention Centre projects, along with other major projects, continue to use considerable resources and are expected to do so for some time. There are still many major projects commencing, as well as those due for completion this year. This will continue to put demand on key trades for the foreseeable future and result in tender price increases, albeit at rates lower than historical levels.
Wellington sees a lack of competitive pricing
In Wellington, as trades can pick and choose projects they wish to tender on, a lack of competitive pricing tension is being observed. This has the effect of driving up prices. Labour shortages are prevalent in most centres and are expected to continue for some time.
For 2019, RLB is forecasting construction cost growth of 3.5% in Auckland, 2.0% in Christchurch, 4.0% in Wellington. For 2020, RLB is forecasting construction cost growth of 3.0% in Auckland, 2.0% in Christchurch, and 4.0% in Wellington.
RLB Oceania Construction Market Intelligence Report Q1 2019
Contact Us
Geoff Speck
T. +64 9 309 1074
E. geoff.speck@nz.rlb.com
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