Subdued inflation in construction costs
New Zealand’s building and construction sector has observed a noteworthy deceleration in cost inflation, marking a shift from the high rates experienced in recent years.
The latest industry insights from Macromonitor revealed that inflation pressures have notably eased due to improved supply chains and decreasing commodity prices.
Historical context and current trends
The New Zealand Construction Cost Trends report from Macromonitor outlined a significant drop in cost inflation for the industry.
After peaking at 14% during 2021/22, the inflation rate has tapered off to just 1.1% as of September, the lowest since June 2020 when it was a mere 0.4%. This slowdown reflects broader economic changes affecting the sector, with cost stabilisation expected to continue.
Key factors influencing cost reductions
The reduction in construction costs has been influenced by several factors. Notably, prices for essential materials such as steel and oil have decreased, contributing to the eased cost environment.
Furthermore, enhancements in both global and local supply chains have helped mitigate previous logistical challenges that amplified costs.
Impact of decreased construction activity
According to Macromonitor economist Abdul Hannan (pictured right), the decline in construction activities, especially in the residential sector, has played a crucial role in tempering cost inflations.
“Additionally, a decline in construction activity, particularly in the residential sector, has further alleviated demand-driven cost increases,” Hannan said.
Labour market adjustments
The construction sector’s labour market has also seen adjustments, with slower wage growth and reduced demand for labor helping to curb inflationary pressures. These changes are in line with the country’s tighter monetary policies and softer demand conditions, fostering a more stable cost landscape.
Ongoing challenges and future projections
Despite the overall positive trends, challenges remain, such as rising costs for construction equipment which continue to exert upward pressure. Hannan remained cautiously optimistic.
“While some cost pressures persist, we anticipate that overall inflation will stabilise and grow at more sustainable rates,” he said.
The report also warned of potential risks from global economic policies, including US tariff changes that could influence future costs.
Macromonitor's future outlook estimates a 2.8% increase in total construction costs in 2025 and a 2.4% rise in 2026, suggesting a gradual alignment with long-term growth patterns. This forecast points to a stabilising trend that could benefit the industry's economic landscape moving forward.
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