Strong construction sector activity continues despite slowing population growth
March 1, 2018.
The Rider Levett Bucknall (RLB) Forecast 86 report, New Zealand Trends in Property and Construction released today, confirms that despite some slowing in population growth, the population surge of the past few years will continue to support strong construction activity for some time to come.
Prepared by the New Zealand Institute of Economic Research (Inc.) (NZIER) exclusively for RLB, Forecast 86 highlights that it takes approximately two years for the full effects of population growth to flow through to construction activity, with some catch-up likely over the coming years.
Further growth in non-residential construction expected
Grant Watkins, Director of RLB in Wellington said, ‘RLB expects a solid pipeline of construction activity for years to come, with capacity pressures starting to ease as higher construction costs encourage more resources, including labour, to be directed towards the sector.’
Strong tourism drives demand for new hotel developments
According to RLB’s Forecast 86, demand for new hotel developments remains the top driver of growth in non-residential construction over the past year due to tourism activity. Demand for industrial and social buildings is also picking up, as businesses feel more optimistic about investment.
Grant added, ‘Public sector spending on education and healthcare continues and we expect earthquake-strengthening activity will also contribute to non-residential construction demand.’
Construction cost inflation to moderate by end of year
RLB forecasts construction cost inflation to moderate to 4 percent by the end of 2018, with an expectation it will ease to around 3.5 percent by 2021.
Grant concluded, ‘Despite the solid construction growth outlook for the next few years, we do not expect inflation to be as strong as the mid-2000s, given that the lower inflation environment limits the extent to which rising costs can be passed on quickly, and strong net migration is alleviating skills shortages in the building sector.’
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