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16 Dec 2020

Home Building Costs Rising as Industries Sees Labour Shortages

According to experts, residential building costs will rise over the next year due to a couple of essential factors. Of course, every industry has been hit hard by covid-19. Though some construction projects have continued, progress has been slow. Now, in addition to coronavirus concerns, the industry is suffering from a shortage of skilled labour.  

"Sourcing the proper building materials has been challenging," said one industry expert. "Suppliers in China and Asia are still sluggish in their ability to provide key building materials. We may be in for another slow, difficult year." 

Will the Covid-19 Vaccine Make a Difference for Construction? 

Other experts concur, saying that 2021 will be a better year for everyone, but things will not return to normal. Three different pharmaceutical companies are now distributing a covid-19 vaccine, but it will take months to distribute the vaccine and get everyone inoculated. 

In a report from Quotable Value, the QV Costbuilder shows the average home building costs have risen by two per cent in October. Due to lockdowns, building costs have consistently increased. Skilled workers are hard to find and come at a much higher rate these days. 

High Demand, Higher Prices 

Julien Leys, executive director of the Construction Strategy Group, represents numerous companies in the construction industry. He comments: "It is definitely going to be higher than that next year. In the short term, with the pressure, we are facing and the demand, I can only see prices going up." 

Low-Interest Rates 

One thing that has helped has been the low-interest rates. If they stay this low, this alone could push demand for new housing up. Hopefully, this would result in a housing boom in both the new and secondhand housing markets. 

Westpac senior economist Satish Ranchhod believes we'll see much stronger demand for housing in the year ahead. He comments about this saying, "We are going to see several years of home building activity, and we are likely to see that spread across the country. It's a strong construction outlook and probably stronger than we had previously anticipated. Things are heating up, and when we chat to most construction firms, they are telling us that demand is pretty firm and I think that we will probably start to see some of that pressure coming through over the coming year." 

Global Shortfall of Construction Workers 

New Zealand's construction industry currently employs between 250,000 and 260,000 workers, but the global pandemic has caused a shortfall in skilled labourers. The plan to deal with this includes initiating educational campaigns to train more construction workers in the trades. Many experts believe that bringing workers in from overseas will be safe now once the vaccine has been distributed. At the moment, these plans are stalled, and the construction industry is struggling.  

Julien Leys comments about that: "There's a significant lack of skilled labour in the housing market. If you talk to any small, medium, or even larger residential builder, they are struggling to get people, and so that matched with demand means you are now seeing delays." 

Rising Home Prices 

Leys said that he believes this will drive home prices up and cause delays. He's in favour of allowing workers from overseas to come in. This would be the first significant opening of the border to foreign workers since the pandemic began. 

He reminds everyone that, "Changes to the vocational sector are going to take some time to work through and until that happens, we are going to need to have those people being brought in from overseas – any number would be good because at the moment we have nothing." 

The Trade Me website showed an 11 per cent increase last October in the number of construction and roading roles that were listed. However, there was a 20 per cent decrease in the number of applications per listing. 

Challenging Times for New Zealand Construction

Building supply companies have already begun to warn their customers about higher prices for the future. New Zealand's largest hardware store chain, Mitre 10, released a statement saying that the industry was facing some challenging times. They said they believed that there would be significant increases in building costs around the world. 

Because of the surge in the international competition for building supplies, these products are taking longer to reach their destination. Freight costs are rising as well. 

Higher Shipping & Handling Costs 

Leys researched this area and found that the cost of a 40-foot shipping container from Asia had soared from $750 to and an unbelievable $4000. Airfreight costs rose, along with handling fees. He said that, at the moment, the industry was trying to absorb those costs, but eventually, they would be passed on to the end-user. 

The retail building supply chain owned by Fletcher Building, PlaceMakers, reminded customers to plan ahead to reduce costs and wait time. Their officials have found that high demand and supply chain challenges are causing delays. 

Bruce McEwen, chief executive of PlaceMakers, commented about this saying, "Many industries in New Zealand are experiencing supply chain issues, and increased freights costs due to shortages and delays in shipping capacity, container availability and port space. Whilst this is an issue across the industry, we are minimising any price increases for our customers where we can." 

The country's largest glass manufacturer, Metro Performance Glass, had similar experiences saying that they were monitoring delays and disruptions at crucial ports. They have had increases in sea and air freight, shipping delays and backlogs for the materials they require in manufacturing. 


Overall, construction industry experts report similar experiences across the board. For the time being, this will be the norm. Shipping and handling charges will go up, whilst delivery times go down. These and other factors will result in higher home prices and longer building times. However, with the low-interest rates, consumers will still be looking for great deals in new and older homes.

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