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Building nailed by soaring construction costs

 

PHOTO/STOCK.ADOBE.COM

MARY ARGUE
[email protected]

The building industry continues to run hot, but construction costs have reached record highs.

A recent CoreLogic report showed costs have continued to escalate quarterly and annually during a time when building in Wairarapa is booming.

The report comes off the back of recent legislative changes to ease the sting of the global plasterboard shortages and precedes a much-anticipated draft report by the Commerce Commission into residential building supplies, due to be released next month.

Wairarapa builders, however, said the current climate should be seen in the context of “boom and bust” building cycles and were not holding their breath for sweeping recommendations from the competition watchdog.

CoreLogic’s Cordel Construction Cost Index [CCCI] showed the cost of a standard 200sqm three-bedroom, two-bathroom home rose 2.6 per cent in the second quarter of this year, lifting the annual growth to 7.7 per cent — the largest increase since the CCCI started in 2012.

CoreLogic chief property economist Kelvin Davidson said the latest figures indicated the industry was under immense cost pressures, with no reprieve in sight, and suspected the worst was yet to come.

“This is the swiftest rise in the CCCI we’ve seen in a decade, and I don’t expect these price pressures to ease for at least another couple of quarters, given ongoing materials shortages and labour pressures,” he said.

Davidson said he would not be surprised if cost pressures continued to worsen before builders’ workloads eased, projected around mid-2023.

The CCCI indicated new dwelling consents continued to hover at 50,000 annually, driven by smaller dwellings, such as townhouses, which accounted for just over
half of all new consents.

Wairarapa district councils have reported record consents over the past year, with South Wairarapa District Council [SWDC] consenting a higher percentage than any other council in Greater Wellington.

In the year to December 2021, SWDC consented 17 dwellings per 1000 people, followed by Masterton and Carterton, on 10 and seven per 1000 people, respectively.

Comparatively, Wellington City Council consented only four dwellings per 1000 people.

Jennian Homes Wairarapa managing director Gareth Norris said the Wairarapa building industry was “extremely busy” but expected that to ease over the next 12 months.

“History repeats itself. There have always been boom and bust cycles in building.”

He said continued price increases necessitated “far greater reviewing” of costs on a weekly and monthly basis.

With an excess of 40-50 projects on the go for Jennian Homes Wairarapa, it was a significant overhead.

“There is a far greater focus on it. There are more stakeholders involved. This is reviewing prior to starting and during construction.

“It’s putting more pressure on the margins across the sector and suppliers.”

He said fixed-price contracts disappeared in the industry a couple of years ago and that the increase in the cost of supplies was not limited to New Zealand.

“It’s supply and demand off the back of global covid lockdowns.”

Norris said building supply competition was a factor, but it was a matter of scale.

“There is always room for improvement. But it’s part of a wider and longer conversation that has been happening over years.

“It’s not just today’s problem.

“You can see a lot of independent competition in Auckland. Wairarapa’s not the same.”

He said New Zealand was a bit player on the global stage and attracting multinational building suppliers to set up here was difficult.

Fletcher Building subsidiary, Winstone Wallboards Limited, which supplies 94 per cent of the plasterboard in New Zealand – Gib – has faced accusations of monopolising the market and, in recent months, failing to see the looming plasterboard shortage.

Norris said Winstone was a major contributor and could be seen as a leader in the industry.

“But did someone not foresee this as a problem months ago? That’s the question.”

He said expanded consent eligibility to five different plasterboards, other than Gib, was a step in the right direction but not a silver bullet.

“They moved on that pretty quickly. That was good. It will help going forward, but it doesn’t help today.

“I can’t go buy those products from overseas.”

Fletcher Building has exclusive rights to make and sell the different plasterboard products, enraging some industry members, including Simplicity Living, an Auckland building company now turning to Thailand to import approved plasterboard.

Norris said he did not anticipate sweeping changes from the Commerce Commission’s industry investigation.

“We’ve had the Commerce Commission looking into fuel and supermarkets, and have you seen any changes there?

“Let’s just leave it at that.”

A self-employed Wairarapa builder said the industry suffered from a severe lack of competition.

He said although hopeful the watchdog would shake up the industry, he did not expect significant recommendations.

He said it was a mystery how suppliers continued to justify price increases while selling the same material.

“Every month you go there, prices go up. It’s just greed.

“Prices are doubling and tripling. I think someone is taking advantage of the market.”

The builder, a 58-year industry veteran, said he was yet to face supply challenges with a renovation in Martinborough but expected rising costs would become a factor before the end of the year on a 250sqm new build. He said builders had to monitor costs constantly, and clients were forced to absorb the cost.

“It’s really the price of timber and Gib board. I cannot see how they can justify it.

“A house that cost $600,000 to build a year ago is now costing $730,000.”

Winstone Wallboards Limited has faced previous investigations by the Commerce Commission.

Despite a clear monopoly on the market, supplying 94 per cent of the plasterboard to major merchants, ITM, Bunnings, Mitre 10, and Carters, a 2014 investigation cleared the company of anti-competitive behaviour.

In December last year, the Commerce Commission announced an investigation into the residential building supplies industry, the third market study after delivering findings on retail fuel and supermarkets.

At the time, Commission chair Anna Rawlings said residential building was an important part of New Zealand’s construction industry and vital to ensuring housing supply could meet demand.

“Various reports on the industry have raised concerns at rising building costs, and this study allows us to consider the industry’s approach to key building supplies and how effectively competition is working within the industry, and where it may be able to be improved,” she said.

So far, 25 submissions have been made, and a draft report for consultation is due to be published on August 4.

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