It's expensive to build in New Zealand and it's only going to get worse. With consents booming, more and more tradespeople and materials are needed, and they're going to cost.

QV's latest costbuilder data shows the average cost of building a new home in New Zealand's four largest cities rose by 21.09 per cent since the previous peak of 2007, and 1.66 per cent in the year to May 2016. Costs have continued to rise since then and show no sign of abating.

Infometrics chief forecaster Gareth Kiernan predicts that residential building-cost inflation will average 5.2 per cent per annum over the three years to March 2019 -- well above the Reserve Bank's annual target of 2 per cent inflation across all types of consumer prices (inflation currently sits at 0.4 per cent). Kiernan says that home building consents are set to hit record levels by 2018 and with the sharp lift in building activity will come side-effects thanks to "intense pressures on construction sector resources fuelling increases to building costs".

Although home owners often complain about the cost of materials, the real problem is labour. "I was up in Auckland talking to people and they are really struggling to get site supervisors, managers, drivers to get the product to market, concreters etcetera," Kiernan says. Although cost pressures on materials are nowhere near as evident as the increases in labour costs, Kiernan says, prices are starting to go up after a period of no increase. Suppliers' margins were squeezed pretty heavily from 2009 to 2011/12, he says. And despite popular opinion, material costs are probably not even returning to where they were previously.

Malcolm Fleming, chief executive of the New Zealand Institute of Builders, concurs that material costs are set to go up. It's not simply price increases that have building products customers up in arms. They complain that products such as plasterboard and insulation cost far more than equivalent products overseas. Scratch the surface of building costs and you'll quickly hear complaints about Fletcher Building and Carter Holt Harvey.

TV show 3D concluded that this duopoly was one of the big issues for materials costs in New Zealand. In 2013/2014 the Commerce Commission investigated allegations that Fletcher Building subsidiary Winstone Wallboards acted anti-competitively to maintain its market position in the manufacture and supply of plasterboard. But the commission concluded in 2015 that Winstone had not breached the Commerce Act 1986.

The newer generation of builders, says Kiernan, sometimes source product direct from overseas that doesn't require Branz certification, bypassing the likes of Fletcher Building subsidiary PlaceMakers. "If you look at the price of [product] in New Zealand in terms of wholesalers and retailers it is relatively expensive." There is more to building cost inflation than simply labour and material cost escalation.

Other significant cost increases can be found in health and safety compliance and higher levels of specifications being imposed such as higher seismic loads. "Given that there is a limit to what can be paid, the sector's leading practitioners are investigating techniques that assist in reducing the costs of constructing a building, and the ongoing ownership of the resultant asset," says Malcolm Fleming, chief executive of the New Zealand Institute of Builders.

Property and construction practitioners are very focused on this challenge, he says. New Zealand could become more efficient at building, Fleming says, by using Building Information Modelling (BIM). "This technology promotes collaboration across the design consultants, contractors and suppliers," says Fleming. "Done well, BIM reduces error rates and costly rework." Whenever the cost of building is mentioned, council costs for building and/or resource consent aren't far behind.

But many people complain that Auckland and other councils' bureaucracy makes building unnecessarily expensive.

Source: NZHerald