Rising import and freight costs heap pressure on construction costs

Thousands of construction sites are re-opening today amid predictions that common building products could run out in just three days.

The full impact of soaring freight costs and shipping delays is coming home to roost on the cost of construction, a new survey shows.

As alert levels eased south of Auckland on Wednesday, work was expected to resume at more than half of the country's new house building sites.

However, in addition to strict social distancing rules, there were immediate concerns about firms running out of materials because many supplies stored in Auckland are unable to leave the city, where Level 4 lockdown remains in place.

Now a new survey suggests that even the supplies builders can get hold of will be more expensive

* Builders returning to work face prospect of not being able to get materials
* Construction delays fears grow as 'perfect storm' intensifies
* Cost pressures in busy construction industry start to ramp up

The survey by Eboss of 240 residential and commercial building suppliers indicates that as of July, suppliers were struggling to absorb the cost of freight.

Two thirds of those surveyed cited it as their biggest concern, and half described “substantial” increases in prices for the goods themselves.

As a result, 84 per cent of suppliers had already passed on price hikes to the consumer, and nearly 80 per cent were expecting to raise their prices further in the next six months.

Masked construction workers site at a new building in Wellington on the first day of Level 3.
Masked construction workers site at a new building in Wellington on the first day of Level 3.

Eboss managing director Matthew Duder said it was not uncommon to hear of freight costs jumping 100 per cent.

“Builders would be very brave to commit to new fixed price build contracts with such uncertainty on the future cost of materials,” he said.

“Many suppliers do not appear to be able to pass the full cost of materials and freight increases on to the customer, meaning margins are tight and businesses are taking a hit.'’

CoreLogic’s latest Cordell housing index also found construction costs were rapidly picking up, with annual construction inflation running at about 4.5 per cent in the June quarter.

Eboss’ survey also found suppliers were heavily reliant on imported goods and struggling to find enough staff.

Ninety per cent of construction products sold in New Zealand were either imported as finished products or manufactured locally using some imported components.

Most of those dependent on imports were having supply issues because of the pandemic, in contrast to just 58 per cent of those wholly reliant on domestic supply.

Forty per cent of suppliers reported that they did not have enough staff to meet current demand, and over half said they were understaffed for future demand.

Many of the pressures facing the industry were outlined in another recent construction report by BDO, which observed that contrary to expectations, the construction industry had gained a fresh lease of life after the last Level 4 lockdown.

The number of dwelling consents in New Zealand are at an all-time high, and the Building Research Association BRANZ is forecasting new residential building consents to stay at record levels of over 40,000 for the next four years.

But many big firms were reliant on migrants and the staffing shortages were so great that the future pipeline of work was now looking uncertain.

Some firms were turning away new work in case they could not complete the job, BDO said.