Strong growth in Otago construction forecast

Otago's construction industry is expected to grow by more than a quarter in the next three years, but those in the sector warn so will costs.

The Ministry of Business, Innovation and Employment’s National Construction Pipeline Report forecast that, after dropping 5.7% to $42.6 billion in 2020, New Zealand’s construction sector was expected to grow steadily over the next four years to be worth $48.3 billion in 2024.

In Otago, the sector was forecast to grow by 27% to $3.1billion, driven largely by expected increases in residential building activity.

House builds were expected to increase in Otago by 12% to $1.6 billion in 2021.

That would be followed by slower increases in activity to bring home builds to a peak of $1.8 billion in 2024.

Otago’s infrastructure activity — largely driven by the Dunedin Hospital build, new tertiary education buildings and Three Waters developments — was forecast to rise $600 million a year by 2023.

Building companies in the region have no shortage of homes to be built but supply chain issues and inflationary pressure seem set to increase the overall cost of building.

Queenstown company DCD Ltd had at least three years of projects already lined up.

Its managing director, Dennis Dowling, said the cost of building had gone up substantially over the past four years and there was nothing stopping it from continuing to climb.

He expected building costs would increase by 6.5% a year largely driven by inflation and the increased cost of freight.

With the cost of building to increase and the "rapidly rising" cost of land, potential home builders were wanting to get into the market now before it came too expensive, Mr Dowling said.

Wanaka’s Christie Brothers Building had more than a year of new home builds planned.

Its managing director, Brad Christie, said that was "very unusual" but very good for business.

The effect of the disrupted supply chain was a new normal that all builders were having to get used to.

It was taking up to six months to get frames and trusses on site.

"The days of just ringing up and getting some a week later are well and truly over," he said.

Having builds lined up over a lengthy period of time meant it was easier to plan for when product was needed, Mr Christie said.

W. Hamilton Building Ltd director Bill Hamilton, of Mosgiel, said although there was plenty of work around, supply chain issues and the ongoing labour shortage were contributing to "reasonably difficult times".

Banks were only lending money to home builders on fixed-price contracts and with costs increasing all the time that was very hard to work around.

"Trying to get a fixed priced from subcontractors, like plumbers, is hard as well because they are facing the same price escalations," Mr Hamilton said

Building and Construction Minister Poto Williams said the sector had held up well in the face of Covid-19 restrictions.

"The sector can be confident that current levels of demand are expected to continue for some time," Mrs Williams said.

"Demand for housing remains strong and will continue to play a lead role in the industry’s Covid-19 recovery, with residential construction forecast to keep growing for the next few years." — Additional reporting The New Zealand Herald

 - riley.kennedy@odt.co.nz

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