Auckland’s multi-billion-dollar cleanup and repair will put more pressure on the already-stretched construction sector, already suffering an eye-watering 17 per cent annual inflation, an expert says.
Westpac senior economist Satish Ranchhod said construction cost inflation was likely to remain strong for some time and in the past year, the costof building a new home rose by 14 per cent nationally, but in Auckland was up 17 per cent. Those figures were from last week’s CPI and he is yet to model how high inflation in Auckland could increase.
“The coming quarters will see a large amount of repair work to housing and business assets, as well as work on roading and other infrastructure. However, that comes at a time when the building sector is already stretched, with a large amount of work already in the pipeline and widespread shortages of staff,” Ranchhod said.
As a result, flood repair work might take some time to complete, he says, and other planned work could be delayed when staff and resources are diverted to essential repairs.
“The experience with other natural disasters like the Canterbury earthquakes highlights that completing this work could take a protracted period of time,” Ranchhod said.
”We also saw large increases in the cost of services and materials used in property maintenance. Those cost pressures looked like they were starting to soften at the end of last year. However, recent events signal renewed upside risks,” he said.
Fletcher Building is New Zealand’s biggest materials manufacturer, supplier and distributor.
The reason it’s that long is because of the process of making a wallboard where the compounds within the plaster need a certain length of time - running for at least 330m at a certain speed - before they enter giant kiln-style ovens to be fired.
Rohan Koreman Smit, a Forsyth Barr analyst, predicted continued rain would stop work on Auckland construction sites.
“Supply chains have freed up and materials lead times are much shorter now so I can’t see it having a big impact on prices. Finishing trades like plasters are still in strong demand at the moment so that’s probably one bottleneck to getting repairs done,” he said.
He doesn’t foresee a major impact on house prices.
“The total write-offs will be relatively small in the context of overall Auckland housing stock,” Koreman-Smit forecast.
“Changes to council plans will be interesting as they approved the builds in the first place - who pays if a house is now deemed flood prone?” Koreman-Smit asked.
Auckland now has 81 red-stickered homes and more warnings for rain across the North Island.
Peter Ward of Ward Demolition said he had a crew at the ruined house in Shore Rd, Remuera where there was a fatality recorded.
“We are part of a second response team with Fire and Emergency services and Urban Search and Rescue,” he said.
Ward Demolition was called in to help find a person at the property, he said.
It had been an extremely difficult weekend for the team working there.
Simon Bridges, Auckland Business Chamber chief executive, said the cost of the damage was hard to grasp so soon after the flooding.
“Understandably, businesses will remain anxious until the flooding subsides. The cost of the deluge – both insured and uninsured – we’re yet to fully grasp, but it will be enormous.
“Hard times will be ahead and we would like to hear how the chamber can be of assistance.
Bridges met Auckland mayor Wayne Brown at the weekend and said financial assistance to businesses with short-term cashflow problems arising from the floods was discussed.
“It’s pretty clear the Mayoral Relief Fund would be the vehicle for any relief. The use of such a fund is a well-worn path from other emergencies, and allows a lot of discretion and flexibility as our understanding of what may be needed changes,” he said.
His hope is any support wouldn’t need to be for long.
“The issues are obviously around damage from the weather, timeframes to get insurance and in some cases a lack of insurance, and loss of incomes for a bunch of reasons around what is happening. Those businesses with a lot of damage are going to find it hard to get tradespeople to repair these premises for example. It will all take time,” Bridges said.
Everyone needs Auckland and Upper North Island businesses which are affected back on their feet as soon as possible after this is over.
This must be a team effort where everyone steps up and plays their part. This doesn’t just fall on Government’s shoulders. Insurance companies and our banks must also lead. Its been great to see strong policies around assistance already coming out from some of the banks. Our SMEs will need this sort of approach,” he said on the weekend.
Fletcher Building is trading on the NZX at $5.23, up from $4.71 earlier this month. It will announce its first-half year result in mid-February.