Reconstruction cost $30b, and rising

The cost of the Canterbury rebuild keeps escalating, according to both official and gut-feel estimates.

The Reserve Bank yesterday put the reconstruction cost for the earthquakes at $30 billion. But that figure is still conservative, says Canterbury business leader Peter Townsend, estimating the total could be near $40b.

Townsend, the chief executive of Canterbury Employers' Chamber of Commerce, says the first couple of quarters of 2013 will see increased pressure from the quake rebuild, particularly in terms of labour shortages and building materials costs.

He was speaking after the RBNZ's release of its December Monetary Policy Statement.

New central bank governor Graeme Wheeler said the cost of reconstruction was now estimated at $30b in 2011 dollars. About $5b of that was expected to occur within the bank's projection horizon which runs through to March 2015.

A RBNZ spokeswoman yesterday confirmed it was the first time the revised $30b figure had been used by the bank in a statement.

In the bank's September Monetary Policy Statement it said it assumed about $20b of assets damaged in the quakes would be repaired or replaced but added the eventual cost may be higher.

The chamber's Townsend said he had been saying the rebuild would be $30b since the time of the February 22, 2011 earthquake.

"My personal estimate is that $30b is looking conservative.

"That . . . we'll be tracking out to . . . between $30b and $40b."

RBNZ's Wheeler said the cost of building a house increased 10 per cent in the past year, with a risk that elevated construction costs in Canterbury placed upward pressure on inflation in other regions. He said that, given the region was at the start of the rebuild, there would be further pressures "in a much more extreme way next year in terms of human resource requirement and materials".

"The inflationary pressures are definitely going to come on, there's no doubt about that."

To tackle the inflation problem, those involved in the Canterbury rebuild would have to outsource or "build scale" for the rebuild outside the city and then truck or rail that in. Also those in Canterbury would need to become more productive.

"There will be a flow-on effect right across New Zealand because of this and it's already being started to be talked about," he said.

UBS New Zealand senior economist Robin Clements said the Reserve Bank's estimate of $5b being spent on the reconstruction in the period to early 2015 could be on the "light side", given a considerable amount had already been spent on infrastructure.

The bank was concerned about pressures originating from the rebuild and the spread of inflation, Clements added. "Inevitably there is going to be some spillover, it's just a question of extent."

ASB bank chief economist Nick Tuffley said the Canterbury rebuild could double construction-cost inflation to 6 per cent.

The Press