NZ construction activity to 'remain strong' even as population growth slows, RLB says
By Tina Morrison
March 9 (BusinessDesk) - New Zealand construction activity is expected to remain strong in coming years even as
population growth slows, as the sector plays catch up after record levels of tourism and migration, according to a
property consultancy.
Rider Levett Bucknall's report on trends in property and construction for the first quarter of 2018 notes that record
high net migration has shown signs of turning in recent months, as the number of people moving to New Zealand eases and
more Kiwis leave the country. However, it says the surge in population in recent years should continue to support
underlying construction demand over the next few years, given population growth has outpaced growth in house-building
and other construction activity.
"It typically takes around two years for the full effects of population growth to flow through to construction activity,
with some catch up likely over the coming years. Hence we expect a solid pipeline of construction activity," according
to the report prepared for Rider Levett Bucknall by the New Zealand Institute of Economic Research.
Despite a rebound in construction activity recently, construction cost inflation has moderated, both in Auckland and
other regions across New Zealand, the report said.
Non-residential construction cost inflation fell to an annual 5.2 percent in the third quarter of 2017, from a 5.5
percent rate in the second quarter and 5.4 percent in the first quarter, according to Statistics New Zealand data quoted
in the report. NZIER forecasts non-residential construction cost inflation will moderate to 4 percent by the end of 2018
and ease to around 3.5 percent by 2021 as capacity pressures in the construction sector ease.
"Despite the solid construction growth outlook for the next few years, we do not expect the inflation to be as strong as
the mid-2000s given that the lower inflation environment limits the extent to which rising costs can be passed on
quickly, and strong net migration is alleviating skills shortages in the building sector," the report said.
"Construction sector firms report it being slightly easier to find both skilled and unskilled labour, with migrants
helping to alleviate labour shortages in the building industry," the report said. "Although the new government has
indicated it is looking to reduce net migration, we expect the slowing in the number of skilled migrants coming in to
work in capacity constrained sectors such as construction will be modest. This means migrants will still likely help to
fill skills shortages in the construction sector over the coming years."
The report noted relatively high construction cost inflation in Auckland indicates capacity pressures in the Auckland
construction sector remain acuter than in other regions. However, it said construction cost inflation in Auckland would
continue to ease as capacity in the Auckland construction sector increases to meet growing demand.
"We expect further moderation in construction cost inflation across New Zealand in the coming years, as labour shortages
and bottlenecks in the supply of materials ease," the report said. "However, strong construction demand means that
despite some easing we expect construction cost inflation will remain relatively high."
Non-residential construction activity lifted in the September 2017 quarter after declines over the first half of the
year.
"We expect further growth in non-residential construction over the coming year," the report said. "Continued strong
tourism activity continues to drive demand for new hotel developments, while demand for industrial buildings is lifting
as businesses feel more optimistic about investment."
The report cited demand for offices to accommodate the higher number of white-collar workers, public sector spending on
education and healthcare facilities, new accommodation buildings in response to the continued high numbers of
international visitors, as well as strong domestic tourism activity, and earthquake strengthening activity.
Despite some slowing in mid-2017, Auckland continued to lead growth in non-residential construction demand over the past
year, the report said.
"Growth has been particularly strong in demand for new accommodation buildings, reflecting the acute capacity pressures
in the Auckland tourism sector. Strong growth in hiring in the professional services sector is also boosting demand for
new office space in the region."
Non-residential construction demand has also increased in neighbouring regions Waikato and the Bay of Plenty over the
past year and was likely to continue for these 'halo' regions over the coming years, it said.
In contrast, non-residential consent issuance in other main cities such as Wellington had eased over the past year, it
said. Although demand for accommodation and healthcare facilities increased, this was offset by lower demand for retail
outlets and office buildings in the region.
Non-residential consent issuance in Canterbury continued to drop on lower demand for healthcare and education facilities
over the past year, the report said. Post-earthquake rebuild activity should continue to underpin non-residential
construction demand, although the level of activity is likely to continue to ease over the coming year.
(BusinessDesk)