Construction costs

By Eric Crampton 23/10/2013

The government’s been worried about construction costs in New Zealand. The Productivity Commission suggested that our bespoke housing markets, caused largely by zoning regulations that restrict larger-scale new developments, help to inflate costs. But building materials also remain strangely expensive.

The NBR reports that the Government intends on coordinating its building material purchasing to reduce costs:

The government, which traditionally accounts for about 27 percent of the construction market, wants to expand the procurement programme to cover building materials as its spending ramps up.

“Since 2007, there has been an upward price trend on a variety of building materials despite reduced demand associated with the global financial crisis,” the ministry said. “Our current forecasts indicate that increases in prices arising from renewed international demand, exchange rate movement, a reduction in raw material availability and rising transport costs will maintain or increase this trend.

“Given both the scale and potential increases in agency spend, government is keen to ensure that it takes a more collaborative, coordinated and strategic approach as to how it procures and pays for building materials,” the ministry said.

Donal Curtin pointed to some less-than-helpful government action that helps increase construction costs. New Zealand initiated anti-dumping action against Chinese wire nails, Malaysian galvanised wire, and Thai plasterboard, among other things. And so we have a specific tariff helping to keep prices up for plasterboard. While we’re trying to rebuild after an earthquake.

So one part of central government is all mad about excessive construction costs. Another part of central government penalises foreigners for selling us construction materials cheaply. Meanwhile, local government does its best to restrict the supply of land to keep property values up.