NBR reports that construction costs are expected to accelerate at the fastest pace since the mid-2000s construction boom. According to the NZ Institute of Economic Research (NZIER), non-residential construction cost inflation will average 4.3% a year over the next three years.
The drivers of the anticipated cost acceleration are resource and capacity constraints associated with both the Christchurch rebuild and expansion in Auckland.
While costs are on the up, the levels of inflation in the construction sector are not expected to reach the same heights seen in mid-2000 – for example, a non-residential construction cost inflation average of 8.7% in 2004. This is because local labour is less likely to head across the ditch while the Australian economy remains slow – in fact, we may see many returning home to pursue local opportunities.
At this stage, cost inflation remains localised but it will be interesting to keep an eye on whether these figures may translate into broader inflation.