The Future of the Construction Industry

We need to raise the roof – Kiwi Construction Industry

Not only are we Kiwis known for our agricultural and dairy industry, we’re known for our hard working and dedicated labourers, and our impressive construction industry.

The New Zealand building and construction industry has contributed a massive 5% to our GDP and employing 8% of the total workforce. Other than Auckland, most cities are small in New Zealand to stimulate massive investments to local areas, and so the supply chain, manufacturing chain, and demand has been geared towards efficiency and high quality. The current building stock, excluding land, in New Zealand is valued at $338 billion, which is a prime example of the high quality and long-term, sustainable effort that Kiwis put into their buildings and construction.

Challenges

There has been a massive increase in construction cost prices, with Christchurch rivalling Auckland’s high prices, and soaring well above Wellington’s, as of 2015. As shown in Figure 1, there is clear growth in the national consent price in millions of dollars for non-residential constructions. From this figure, we can see that non-residential building work has increased by 2% in Christchurch. New consents nationally are up 13.8%, an average of $250million in December 2013.

ASECO Lydia Blog Picture

Construction costs in Christchurch increased by 11% from February 2013 to February 2014, growing higher than any other area or industry in New Zealand. In Auckland and Wellington, the construction costs are 4.3% and 4.6%. The positive outcome of this though, is that increased construction costs also has equalled to increased earnings, going up 1% each. Although, construction hourly earnings appeared to be 8% lower than other industries in February 2014, which is an improvement than the average 10% lower than other industries in 2012.

As New Zealand has a relatively small economy, the Government and a large proportion of the population will be focusing on effectively exporting the tourism and dairy industries. Although this does leave the protection of natural assets (and environmental stability) to be improved on. It is a main driver to support and build for the increase in population growth, estimated to be 5.5 million in 2040.

Quality focusing is what separates New Zealand’s building industry, concentrating in on issues such as weather-tightness to combat our temperate climate, and looking at the long term effects of the structural integrity and maintenance will be important as the demand goes up. Due to the industry’s significance to the New Zealand economy, fluctuations of the global market will have a strong effect on the construction industry, as short-term planning will often take precedence over strategic planning.

Our future trends

Major construction groups appear to focus on commercial, industrial and residential services with a strong awareness of environmental impact and long-term orientation. These major New Zealand construction companies are also focusing heavily on communities, such as offering scholarships, donations to local trusts, and rebuilding community spaces (such as Churches). These construction companies and independent developers also tend to lean towards suppliers and manufacturers who tend to have a similar outlook.

This means that basically our internationally recognised firms are following the US trends of supporting environmental sustainability and socio-cultural awareness as an additional part of their company. Most companies have a major selling point of corporate-social responsibility and long-term orientation of their buildings. This means less costs for maintenance and focusing on ways to create the building’s own energy and save costs for the users (such as solar power, and rainwater storage tanks).

The New Zealand Green Building Council is also becoming more recognised within the construction industry, opting to improve buildings by creating a new tool to transform commercial residencies. This means that new technology will bring the construction industry the ability to continuously improve the quality of buildings, keep up maintenance, as well as bring sustainable options to New Zealand for a more affordable price. There is also a drive for higher productivity in the industry, as the Government is listening to the Construction Industry Council (CIC), and developing the needs into action.

Quarterly ending June 2015

Auckland appears to have more similarities with Sydney and Melbourne than other areas of New Zealand, such as Christchurch or Wellington. This is because no other city in New Zealand currently has a population of over 500,000, a large central business district, and since 2011 even house price has grown faster than Christchurch.

The real construction sector GDP and employment has grown since 2014, increasing 1%. From here, we can imply that a greater section of New Zealand’s resources and the economy are going towards the construction industry. Non-residential construction cost growth is also growing, going up 0.6% from December 2014 to June 2015. Since December 2014 again, there has been an 18.3% increase in non-residential building activities, with building consent prices and demand increasing steadily since 2011.

 

Written by Lydia-Rose Sleeman, Marketing Consultant at Pipedown Ltd