RMBA: ‘Costs could break builders’

Construction costs have increased by record amounts in the year ended 2021, prompting warnings from the Registered Master Builders Association that some firms may go broke

Thanks to an increase in new building consents, supply chain disruptions and labour shortages, it’s now 7.3% more expensive to build than it was last year, according to CoreLogic’s Cordell Construction Cost Index (CCCI). 

This has prompted warnings from David Kelly, Chief Executive of the Registered Master Builders Association, who said cost increases could be the straw that breaks the camel’s back. 

“Smaller builders have little leverage over supply of materials; they don’t have as much leverage over consent authorities as bigger businesses do; and they’re struggling to complete jobs and get paid. It’s a very serious situation,” said Kelly. 

Record rises

The CCCI shows that New Zealand hit an annual inflation rate of 7.3% – which surpasses Q4 2017’s cyclical peak of 6.9%. 

To add further insult to injury, NZ’s quarterly cost inflation broke records in Q1 2022 with 2.4%, beating the old high of 2.2% for Q1 2021. 

Kelly said the increase in inspection wait times, as outlined in Under Construction on pages 28-29, is having a serious impact on builders. 

“Additional delays to consents means you’ve got to wait longer for inspections, which makes it even harder to manage projects and harder to get specialist trades in when required, which means builders can’t move through construction stages. It could be a tipping point, which could break the back of some building services.” 

Swamped services

Record new dwelling consents, with 49,800 registered in the year to February 2022, will place more strain on builder’s resources. The CCCI forecast that costs will continue to rise throughout the year as completion delays and material shortages sweep through the industry. 

“I wouldn’t rule out a period of double-digit cost inflation into next year too, especially if the Ukraine-Russia situation keeps the pressure on oil prices and global shipping, even if/when Omicron’s impact fades,” said CoreLogic’s Chief Property Economist Kelvin Davidson. 

“One implication of the capacity pressures for house building is the time between dwelling consent and completion could increase further.”